Over the next few years, millions of parents are expected to contribute to Trump accounts established for the benefit of children under 18.
The specifics of Trump accounts are discussed elsewhere.
Some parents with teenagers will make annual maximum contributions of $5,000 to these children’s Trump Accounts until the kids turn 18, when parental contributions must cease.
At that time, Trump accounts become Traditional IRAs solely owned by the child, and only the child can contribute, following IRA contribution rules.
But what if that child wishes to withdraw money from that account or convert the account to a Roth IRA?
Distributions of any kind are not permitted before the child turns 18. After that time, when the account becomes an IRA, early withdrawal penalties are waived if distributions are made for certain qualified purposes, such as Roth IRA conversions, medical emergencies, qualified higher education costs, adoption costs (up to $5,000), or up to $10,000 for the purchase of a first home.
However, in some situations the distributions could trigger the IRS kiddie tax.
What is the kiddie tax?
The kiddie tax mandates that a portion of a child’s unearned income above a certain level be taxed at their parent’s tax rate under certain conditions. In the case of IRAs, it could apply when withdrawals are made.
In this case, unearned income is any income that the child doesn’t earn through a job, a side gig or other wages.
It includes interest from bank accounts, and dividends and capitals gains from their taxable brokerage accounts and Uniform Gift/Transfers to Minors Act accounts.
When it applies
Normally, IRA distributions are taxed at the account owner's tax rate, based on their adjusted gross income for the year, which includes both earned and unearned income. Since children generally don’t earn that much, their tax burdens tend to be relatively light.
However, the kiddie tax is generally applicable in situations where your child’s total taxable unearned income is above $2,700 and:
- Your child has not reached the age of maturity in their state.*
- Your child is or will be 18 at the end of the year but is still financially dependent (i.e., not living solely on their own income).
- Your child is a full-time student from age 19 to 23 and is still financially dependent at the end of the year.
How does it work?
There are three tiers that determine taxes on unearned income for people who fit the three criteria above. .
- The first $1,350 of unearned income isn’t taxed.
- The next $1,350 is taxed at the child’s tax rate (based on their AGI for the year). If they have no earned income, that tax rate is usually 10%.
- Any amount above $2,700 is taxed at their parent’s marginal tax rate.
A hypothetical example
In 2028, your 19-year old child is a full-time, financially dependent college student who is not working. That year, she takes a full distribution of the $15,000 in contributions you've made to her Trump Account and its $1,000 in earnings to pay for college.
Your income puts you in the 24% IRS bracket.
She won’t have to pay the 10% early withdrawal penalty, because this withdrawal is for a qualified expense. And because your Trump account contributions were made on an after-tax basis, they're considered cost-basis and are not subject to taxes when distributed. Only the $1,000 in earnings is potentially taxable.
So, what would her tax bill be for that distribution? Actually nothing.
Why? Because the $1,000 in contributions would be under the $1,350 "first tier" unearned income threshold.
However, if the total amount of earnings were $5,000:
- She would pay no taxes on the first $1,350.
- She would pay 10% ($135) on the next $1,350.
- The remaining $2,300 may be subject to kiddie taxes, payable at your 24% marginal tax rate. ($552)
Thus, the total amount she might have to pay could be $687. Note however, that this is a purely hypothetical situation based on today's tax rates and doesn't reflect the possibility that marginal and kiddie tax brackets could change in 2028.
If any case, if you’ve just started contributing to your child’s Trump Account, kiddie taxes may not be an issue. But it’s something you may want to consider the closer your child gets to taking over the account on their own.
This material has been provided for general informational purposes only. Canby Financial Advisors does not offer tax advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax professional on any tax-related issues.
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This article was authored by Martin Baker and Jeffrey Briskin. Martin is a financial advisor and Director of Financial Planning with Canby Financial Advisors, LLC, an Investment Adviser registered with the U.S. Securities & Exchange Commission. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or ability. Martin can be reached at 508.598.1082 or mbaker@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
©2026 Canby Financial Advisors, LLC.
*The age of maturity is 18 in all states except for Mississippi (21), Alabama (19) and Nebraska (19)