By Andy Ives, CFP®, AIF®
IRA Analyst
These days, anything with a hint of politics can be divisive. Trump accounts are no different. Public comments about this new savings vehicle are clearly rooted in the political divide that permeates our country. We are all sick up to our eyeballs with political bickering and the “whose-side-are-you-on” mentality. To avoid politics and focus solely on the numbers, we will refer to Trump accounts as “530A accounts,” so named by the section of the Internal Revenue Code enacted under the One Big Beautiful Bill Act (OBBBA) on July 4, 2025.
The math is clear. The compounding potential of dollars within a 530A account vs. a Roth IRA is impressive for those with a long-term view. Since eligibility for a 530A account can occur many years before Roth IRA eligibility, a 530A account owner can benefit not only from the extra years of growth, but also from additional contribution dollars. (Note that this article is not intended to be a comprehensive comparison of 530A accounts vs. a 529 account or an UGMA/UTMA.)
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The Roth IRA Option. For a child to open a Roth IRA, he must have earned income. Yes, there are child actors and other ways for little kids to have earned income, but that is not the norm. Taxable wages don’t typically happen until the teenage years. Assume Henry, age 15, starts his first summer job and earns $5,000. (That’s an impressive number, but we are keeping things equal in this comparison.) Henry is eligible to contribute $5,000 to a Roth IRA, and he does so. Henry earns the same amount over the next two summers at ages 16 and 17, and he contributes all of it to his Roth IRA. The $15,000 is the most Henry is eligible to contribute based on his earnings. At age 18, assuming 6% average annual growth, Henry’s Roth IRA is worth just over $16,800. That’s an impressive balance for an 18-year-old! If Henry never adds another penny to his Roth IRA, assuming a 6% average annual return, the account will compound to over $172,000 (tax-free) in 40 years ($364,971 at 8% average annual; $760,355 at 10% average annual).
The 530A Account Option. 530A accounts do not require a child to have earned income to contribute. This allows babies to have 530A accounts opened for them. The current maximum contribution amount allowed for a 530A account is $5,000. (That number is indexed and will increase, but for this article we will stick to $5,000 annually.) Assume Henry has a newborn sister named Sophia. Sophia’s parents contribute $5,000 to a 530A account from her birth until Sophia’s age-17 year ($90,000 total). At a conservative 6% average annual clip, the account will be worth north of $150,000 by age 18. In the age-18 year, 530A accounts can be converted to a Roth IRA. Assume the conversion is done and Sophia’s parents pay the tax due. (Disregard the kiddie-tax concerns and the fear of giving an 18-year-old a $150K account. We are focusing on the math.) If Sophia never contributes another penny to her Roth IRA, after 40 more years of compounding, the future account value numbers are as follows: over $1.5 million at 6% average annual; over $3.2 million at 8%; and over a whopping $6.7 million at 10% — tax free!
530A accounts can be maximized as very long-term savings vehicles. Those with foresight and decades of patience can jumpstart a child’s retirement savings. The math cannot be argued with.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/530a-trump-accounts-the-compounding-mathematical-facts/
