Planning for a child’s financial future is one of the greatest gifts parents, grandparents, and even close family friends can provide. Beyond just meeting today’s needs, strategic planning ensures your child is set up for long-term stability, whether for education, career opportunities, or retirement decades from now.
Fortunately, U.S. tax law provides several powerful savings tools—from the brand-new Trump Accounts to tried-and-true 529 plans and even creative strategies like employing a child in a family business. When used wisely, these options don’t just save money; they teach financial responsibility and create a strong foundation for generational wealth.
Let’s walk through the most impactful strategies.
Trump Accounts: A New Era in Child Savings
Recently introduced through tax reform, Trump Accounts are designed to encourage savings for children under 18. Think of them as a cousin to the IRA, but without the requirement that the child have earned income.
How They Work:
- Eligibility: Available for U.S. citizens under 18 with a Social Security number.
- Contributions: Parents, relatives, and even employers or nonprofits can contribute, with an annual cap of $5,000 (indexed for inflation). Contributions aren’t tax-deductible, but accounts grow tax-deferred.
- Distributions: Funds generally remain locked until age 18. Early withdrawals of earnings (not contributions) before 59½ may trigger income tax and a 10% penalty, unless an exception applies.
Government Bonus: To spark participation, Congress approved a pilot program: every U.S. newborn between 2025 and 2028 automatically receives a $1,000 government contribution, credited as a refundable tax payment. Even if parents don’t open the account, the Treasury will step in to create one when the child is first claimed on a tax return.
When to Start: Contributions are expected to begin in mid-2026, so families should keep an eye out for IRS guidance on setup logistics.
Section 529 Plans: Education Savings that Work Hard
For decades, 529 plans have been the gold standard for education savings. Contributions grow tax-deferred, and withdrawals are tax-free when used for qualified education expenses.
Key Benefits of 529s:
- No Income Limits: Anyone can contribute—parents, grandparents, even family friends.
- Gift Tax Leverage: Stay within the annual gift exclusion of $19,000 per child in 2025 ($38,000 for couples), or supercharge savings with a 5-year lump-sum gift of up to $95,000 ($190,000 for couples).
- Expanded Use: Funds can now cover up to $20,000 per year for K-12 tuition (reduced to $10,000 for payments before July 4, 2025), plus certain apprenticeship programs.
- Flexibility: If your child doesn’t need the funds, you can transfer the account to another family member.
- Roth IRA Rollover: Thanks to Secure Act 2.0, leftover 529 funds (up to $35,000) can roll into a Roth IRA for the beneficiary, provided the account is at least 15 years old.
Employing Your Child: A Win-Win Strategy
For family business owners, employing a child can be both a teaching opportunity and a tax-smart move.
The Benefits:
- Tax-Free Income: In 2025, a child can earn up to $15,750 (the standard deduction) without paying federal income tax.
- Business Deduction: The wages are deductible for the business, reducing taxable income. If your business is a sole proprietorship or partnership owned by both parents, wages to children under 18 are exempt from FICA taxes—an additional savings.
Roth IRA Potential: Once your child earns income, they can contribute to a Roth IRA (up to $7,000 in 2025). Here’s why that’s powerful:
- Tax-free growth over decades.
- Flexibility to withdraw contributions anytime.
- No required minimum distributions.
- The earlier they start, the more they benefit from compound growth.
Even modest annual contributions can turn into a six-figure retirement account by the time they reach adulthood.
Additional Smart Moves for Building Wealth Early
While Trump Accounts, 529s, and family business strategies are the headline tools, families can also consider:
- Encouraging Early Entrepreneurship: Babysitting, tutoring, or dog walking can generate income to fund savings or retirement accounts.
- Teaching Financial Habits: Whether it’s contributing allowance money to savings or tracking investments, these habits pay dividends in adulthood.
- Layering Accounts: Pairing 529 savings with a Trump Account or Roth IRA ensures flexibility—education, retirement, or general financial security.
Why It Matters: Creating Generational Wealth
Each of these strategies has a common thread: they’re not just about money, they’re about mindset. By showing children how to earn, save, and invest early, you set the stage for lifelong financial discipline.
For high-net-worth families, this also ties directly into estate and gift tax planning—ensuring wealth is preserved and transferred efficiently. For small business owners, it can mean leveraging your company to strengthen family legacy.
And for every parent or guardian, it’s about peace of mind—knowing you’ve given your child a strong start, no matter what path they choose.
Final Thoughts
The landscape of child-focused financial planning is evolving fast. With the new Trump Accounts joining established vehicles like 529 plans and Roth IRAs, families now have a robust toolkit to build a child’s financial future.
By blending tax-smart strategies with real-world opportunities like employment or entrepreneurship, you can set your child on the path to success—whether that’s funding their education, teaching them financial independence, or helping them retire decades ahead of schedule.
At JS Morlu, we specialize in proactive tax planning and wealth strategies that help families like yours maximize opportunities and minimize liabilities. If you’re ready to explore how these tools fit into your family’s financial plan, contact us today for a personalized consultation.