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The $1,000 To-Do for Every New Parent Thumbnail

The $1,000 To-Do for Every New Parent

Financial Planning Insights Investments

Nearly every week, we meet with parents who either want to, or wish they had, put aside a little extra to give their kids a head start. Many new parents are surprised to learn that a relatively small amount invested early can have a bigger impact than larger contributions later on. For children born between 2025 and 2028, that head start now comes courtesy of the federal government. We're talking about the Trump Account (or 530A account, for Internal Revenue Code aficionados), and it adds a new wrinkle to how you think about saving for the kids in your life.

This new type of account, created under the One Big Beautiful Bill Act (OBBBA) of 2025, is effectively an IRA for kids that waives the need for earned income and allows contributions of up to $5,000 per year per child. To jump start the program, kids born between January 1st, 2025 and December 31st, 2028, will receive a $1,000 initial contribution, no strings attached. Children born outside this window may qualify for a lesser funding amount (keep reading for more information).

$1,000 and time in the market can be a powerful combination. The Treasury's own projections estimate that the initial contribution could grow to roughly $6,000 by age 18 and more than $240,000 by their retirement, all without any additional contributions! We’ve always made the case for starting early, and this is no exception.

At age 18, Trump Accounts convert into traditional IRAs, subject to all the usual IRA rules. Investments can continue to be tax-deferred up until Required Minimum Distributions begin or converted to a Roth IRA to secure tax-free growth from that point forward. At age 18, it’s common to have little to no taxable income, so a conversion to a Roth might mean paying tax at a low or even 0% tax rate. Getting this decision right could unlock decades of tax-free future growth!

While not eligible for the $1,000 contribution, children born before 2025 may be eligible for a separate $250 contribution funded by private grants. This contribution is limited to the first 25 million claimants and only available to children born before 2025 age 10 or younger who live in zip codes with a median household income under $150,000. Find out more here.

After establishing the account to claim your child’s free contributions, it's worth stepping back before committing additional dollars as there are a few alternatives worth weighing:

    • 529 plans: Remain the strongest option for education-specific savings, as the growth is tax-free when used for qualifying educational expenses.
    • UTMA/UGMA accounts: Largely unrestricted use, meaning funds can be used for anything that benefits the child, on your timeline rather than the government's.
    • Your own accounts: Before funding someone else's future, make sure yours is on track! Consider if you have well-funded investment accounts and have eliminated high interest debt before committing more dollars.

If you or someone in your life recently had a baby, particularly those born in 2025 or 2026, make sure they take advantage of the free governmental contribution. This money is theirs to claim and intended to jump start their investment journey! If you have questions about whether making additional contributions makes sense for a baby in your life, please reach out to the team at Woodward Financial Advisors to discuss your specific situation and goals; we look forward to helping.

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