Mm. Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.
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Well welcome to Finishing Well, a certified financial planner. Hans Scheil. And today's show, maybe you've heard about these Trump savings accounts and tax advantaged accounts for children. It seems like. Free money, and it sure seems like it's a wonderful opportunity that has been put into these new legislations.
And we're going to get into what those are. Of course, some of them are down the road, and we just want to give you an idea of what we're talking about and some of the planning that you might want to be thinking about if you look forward to these things. And so, as I was studying this and thinking about what it looked like in the Bible, I couldn't help but think of. How David in 1 Chronicles 22 was told by the prophet that he wasn't. To build the Lord's temple, but that because he was a man of blood, but his son could, who was a man of peace.
His name was Solomon, like Shalom, complete peace itself. But the amount of planning that David did for Solomon, I want you to think about it for a while, is really amazing. Because his planning not only benefited Solomon, it benefits us to this day. In so many ways, it's unbelievable. Because, yes, he provided timber and gold and silver and all those things so that his son could build the temple.
And so the amount of planning that went into all that was just spectacular. But when you look at the planning that David did In actually how the temple worked and the songs that he. Wrote that they would be able to praise God in the temple, we sing those songs today. In other words, A lot of the resources that David received in his lifetime from God, he used and pushed on for generations and generations and generations until we today receive this blessing. From King David.
It's absolutely spectacular. The long-term planning that he went into, and what a neat thing that we can do with our lives, right? It's to do this kind of long-term planning that our resources that God gave us, our skills can be pushed to generations unlimited.
So, hans. Yeah.
So This one big beautiful bill act, OBBBA. It's got a whole laundry list. of stuff The main thing that it did is it extended the tax cuts. Taxes were going to go up in 2026. Yeah.
Or go back to the old rates that they were in 2017, and it repealed that and just made them stay the same. with increasing brackets. indefinitely. That was the biggest thing of the OBBBA. But a whole bunch of other stuff is in there, including senior benefits.
And so you got these Trump savings accounts. And I'm just going to tell you in a nutshell what they are is they're a new type of account. It's in a savings account for children. The government is going to fund the first thousand dollars. You're going to make a $1,000 deposit.
For any babies born, from January 1st, 2025.
So that's been all of this year to this point. Through January 1st. 2028. Actually, it's 1231 2028.
So it's four years. Any babies born during that time are going to get a seeding into this account of $1,000.
So if you have a grandchild. born during this period of time. Um you're going to want to think about opening one of these accounts or your children. We're going to do that. simply for the free thousand dollars.
Um So I don't know what that's put in there for to encourage fertility, encourage people that have children. You know, when when you when you talk about it, Hans and you know, a lot of people start accounts for their children when they're young just to show 'em that y You know what it's like to have an account, what it's like to save, and it'd be someplace to put money, right? To begin that process, and if nothing else. You know, they're going to be made aware that, hey, there's things called a bank account, and I have one, and I already have, you know, this. Beginning of a nest egg in here.
So it's just the process itself that is going to. Encourage parents and grandparents and great-grandparents, right, to make sure that they take full advantage of this money. I think they're great. I'm going to open them for my grandchildren. And both of them were born before 2028, I might have some more and I'll open them for them too.
Um And then You know, I want to talk, we're going to, during the show, we're going to compare them to a couple of other things that are available right now. three other things. that are currently available to save for children. But right off the bat, I want to let you know you can't open one of these until July of 2026. because they passed something in a law you can't open the account next week because it's going to take them a year.
First of all, for the IRS to clarify some things. And then for the custodians. You know, the banks, the financial institutions to actually get an acceptable account opened up.
so that we the financial advisors can sell them and Open them.
So just to understand. These the first ones are going to be available in July of 2026. But that's not stopping us from answering all your questions because there's a lot of uncertainty out there.
So I'm going to go through it kind of quickly some of the points. And then you just stop me when you want to comment or you want to. add something or ask a question.
Well, just a point of clarity right now is the Trump savings accounts aren't available till July of 2026, but the other accounts that we're going to talk about They're available right now. The 529 college savings plan, the I-bonds. and the life insurance. Right.
Okay, those three things are available right now. And so first we're going to just go over some of the details of this. of this these Trump savings accounts. It's to encourage long-term savings for children. It can be used not just for higher education.
It can be used for a first home. It can be used for starting a business. And there's another laundry list of things. that this money could be used for besides education.
So that's a good thing. I already went over its babies born 1-1-2025. Until 1231, 2028. are going to get the seating of $1,000. You can still open them for other children.
You're just not going to get the thousand bucks. Children already born and under 18 can open these. Um who can contribute as parents relatives that would include grandparents. Guardians and employers can contribute. Um up to 2500 bucks a year so Um I had Tom mention that you know I could start a program like that at Cardinal and give his kid 2500 bucks.
I'll have to think about that a little bit. Um But uh It's up to 5,000 annually can be put into these things.
So there is a cap on the amount. in each year. And obviously, you can't put any in this year, but next year you could put in five thousand the thousand dollar seeding money from the government for a baby doesn't count against that five thousand. Um The money inside here grows tax deferred.
So you're as you earn interest on these things. and gains, you're not going to pay taxes on that. until your child actually is an adult and they pull the money out.
Well that and to talk about that a minute, because It's a bigger advantage than you just think about when you originally go, Oh, it's tax deferred. But because it's tax deferred, the money sits in the account making interest And it's not gaining you know, more taxes, so to speak. But what I'm saying is that that as that money is tax deferred, it it it allows you to make interest on the government's money, essentially, right? Sure. You're not paying any current income tax.
Um And it, you know, it's kind of like you're part of your IRA, is that money you don't pay taxes on until you pull it out.
So Understand that, that's a benefit. Um The custodian Tracks the basis because the money you put in, the money that was put in for gifts that parents, relatives, grandparents. uh put into these things you're not going to get taxed on that again.
So the contributions come out later tax-free and it's up to the custodian. the financial institution to track How much of this was contributions and how much of it was tax deferred growth.
Well, let me ask you a question since I got you right here. Yeah.
So Right. You you're only allowed to gift a child so much in a given year. Uh is this an exception?
So if you could put five thousand dollars in this for a child or a grandchild or whatever, does that affect How much you give 'em through the regular gift process? Yeah.
So you can only give nineteen thousand to anybody. in a given year. But if you're a husband and a wife, you're two people. That's 38,000. Um you can Each of you.
The husband and wife can give 19,000 each to one grandchild.
So That's 38,000, but that's the cap. And there's some ways to get around that. But this 5,000 Um Annually, it would count toward the 19,000?
Okay, that's the question. Good.
Okay. Right.
Yeah.
You know so Some people are going to look upon this as a positive. Other people are going to look at it as a negative. At 18, the beneficiary becomes the owner.
So if you have your baby grandchild in 2026. that you open one of these four. And then 18 years later, Yeah, yeah. 44, is that right? No, I'm not sure.
Yeah, I'm doing the maths. On his eighteenth birthday or her eighteenth birthday, they become the owner of this account. And so they can go down to the bank, draw out the money and go buy a motorcycle.
Okay, and there's absolutely nothing you can do about it. But if they do that, they're going to have penalties, right? They're going to have taxes and penalties. I want you to go out and interview 18-year-olds and find out how many of them. Care about.
Taxes and penalties, but you're absolutely right. You're probably going to end up paying them. That could be defined as a weakness in these things. But there's also ways to hide these accounts from the kids. I mean you really kind of don't tell them you tell them it's kind of out there.
But you don't really tell them where it is. And you sure don't tell them that they get access to it. Um Now That's all. pretty much within the law, but when they come asking and they go searching, Or if you Start handing them the mail and say, This is yours now, they can drive down to the bank, or they could probably do it online. they can access this money.
Right.
And this is going to be a good point to Remind you that this show is brought to you by Cardinal Guide. CardinalGuide.com. And When you go to CardinalGuy.com, you're going to find the seven worries tabs, which I'm very curious on which of the seven worries tabs are you going to find this Trump Savings Account and Tax Advantage accounts for children under income? It's going to be under IRA. Under IRA.
Okay. So if you look at the IRA tab, you're going to find a video along these lines. They have, the show notes includes the documentation and all that they have on the Trump Savings account at this point in time and the 529 other accounts that we're going to talk about shortly. And so we've got all sorts of things for you there. Like in under the IRA tab at cardinalguy.com and of course Hans's Complete Cardinal Guide to Planning for and Living in Retirement.
His book and workbook are there at the website and the Contact Hans and Tom page when you or their own questions that you may have about these things. It's all there at CardinalGuide.com. We'll be right back with a whole lot more on this idea of the Trump Savings Account and Tax Advantaged Accounts for Children. Stay tuned. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM.
a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with Certified Financial Planner Hans Scheil, and today's show.
These Trump The savings accounts and tax advantage accounts for children. How fun. New information. Hot off the press. Hans has got some.
helpful stuff as we begin to plan for these.
So Hans? Yeah, so we've studied these things top to bottom, and I just want to remind everybody. that they're not going to be available until July of 2026. Perhaps That's the end. It's my understanding they will be available in 2026, and it takes They passed them as a law in July of 2025, part of the OBBBA.
And it takes the IRS and then subsequently the financial institutions a year. before they can roll out a new type of account. There's several things that are unique about this. There you go. Yeah.
The money, when your child, who's now become an adult, withdraws from the account and uses it. for something like education or a home. A first home, um starting a business, all those kinds of things that are listed in the law. they are going to pay ordinary income tax. On the growth portion of the withdrawal, of the amount of money, that interest that accumulated tax deferred is going to become taxable.
And presumably, like if your kids are using this for college, Where they're using it to buy a first home or to uh start a business their income is not going to be super high.
So it could be that the tax is not going to be real large because they're going to be in a relatively low bracket. But So we're going to put that down as possibly a benefit to these things. And when they really need the money, they don't have a high income. for high taxable income. Um no penalties if withdrawn for the right purpose.
So That's where they're different from an IRA. As long as you meet the list of purposes, So that you're for the that they have with the plan that you're buying or you're purchasing like a first home or uh you're having your first child or your uh starting a business, you're using it for pay for college.
So long as you meet something on the list. There's no penalties. for pulling the money out. And again, I want to mention they're not available. until July of 2026.
But people are asking us questions like crazy.
So and if you really want to discuss one of these or some of the others, you know, give us a call. Write into us, send in an email, and Uh we'll we'll be glad to clarify anything of what's Yeah. What's going on with them? Right.
you know, we were talking about right before the break, the fact that on the Trump one compared to the other ones. And so when we start to compare them... You know, one of the really different things is the ability for the child to get at the money when they turn 18, and as they're they actually are the owner of the money. Regardless how you may feel, it's now their money and you know, hopefully You know, you've got had a chance to either find a way to protect them from themselves or. Educate them on You know, hey, this is...
Not for anything but these purposes. Otherwise, you're going to pay penalties and lose out on this when you need it for a house or when you need it. When you go to start a business and these kind of things, that are really wonderful because, on some of the other plans that you're going to talk about, those aren't. You know, you can't use it for those kind of things, right? Let's talk about some of the comparative plans.
That's right.
So the 529 college savings plan. has been around for quite a while. I used it with my kids. And people have lots of clients involved. And the thing that's different with that is There's a custodian over the account, like on my kids, it was me.
Yeah.
So my kids couldn't get any money out of there. themselves, they still can't, and the money that's left there and they're in their 20s and 30s now. It it has to be signed off by me.
So that would be a plus of the 529 plans. One of the negatives for some people is the 529. to get the best tax advantage. It needs to be spent on College education. I mean, that's what it's for.
And so And that's what I used it for my kids. I've set them up for my grandchildren. And I got the other grandparents contributing. Yeah.
I see these for my situation as better than the Trump savings accounts. for a number of reasons. One is it doesn't give control. Uh it doesn't have an upper limit has an upper limit, but it's like a hundred thousand dollars or something so it's way more than i'm going to put in there in any given year so you can put chunks of money without worrying about the gifting regulations. Um And then it shares the fact that it's tax deferred.
But if the money is spent on College in the right way, it then becomes tax-free. That was the real benefit. of a 529 savings plan.
So I won't be using these. as a replacement, but I'm still going to open these for my grandkids. And then they got a savings account going for other things as well. Um which is always good for kids.
So with the five twenty nine, if I'm understanding. Um that the little f Finesse parts of it. is that if they if you know you can obviously because college education is expensive. You know, you could have $200,000 in one of these things. I had almost that much.
In each of my kids. Right.
And so if there's two hundred thousand dollars in there and you you begin to think o how that money's compounding and the interest on it, et cetera, et cetera. And now the fact that if they use that For the college education, it's no longer tax-deferred, it's tax-free. In other words, they're not paying income tax on. the growth of the money at all. If they use it for the computer.
Used for education. That's what we did. And then if there's money left over there, Well, then you could draw it out and you could pay Taxes. And some penalty So that the penalty is kind of yuck. But there's a way around that as well.
a couple of them is one, my youngest son is now converting some of that money that's left over in his to a Roth IRA.
So that's another show. And the government lets you do that, so they've expanded that. It also You could change the beneficiary on the thing. We could have done that. Uh if this had been my older son, we could have just changed it from his name to my grandsons.
and just put one of them down as the beneficiary so you could use it for further generation.
So I don't want to harp on about the 529 college savings plan. It's available now. And it's a nice place to chunk money. Yeah.
to put there for college for your kids. or grandkids. Um A next alternative are those I bonds. And the I bonds. are really just those Savings bonds.
that are invested, they're grow tax deferred. Yeah.
If you use the money in there uh for to pay for college Or the kid. or any kid actually, you don't have to name a beneficiary for the college part. The I-bonds would stay in your name. Um And that's how most of them are set up. But anyhow, that's another savings plan.
for kids. And it's all electronic. I could explain that to you. I can't really sell them to you, but I could. certainly direct you.
if you wanted that and then The the other one is is buying a life insurance policy. um for your your kids and is paying the premium or your grandkids. Yeah.
You think, well, what do I need life insurance on my grandkids for?
Well There's a whole list of reasons, but one of them is you can have some pretty good money accumulated in there. By the time they're 18. and they're going to college. if that's what you're going to use it for. and you got the same tax deferral.
on the growth of the financial stuff. Yeah.
they can when they're going to college, they can borrow the money essentially from themselves, from the life insurance policy. And then they can pay it back. and then they can have this life insurance for life. Or don't pay it back. There's a lot Go ahead.
Well, with this one, it sounds to me like similar to the Trump plan, which I kind of like the flexibility of it because maybe your child decides to go to To trade school, they want to start their own business. Like my son got into the ATM business. And all of a sudden, here's these resources that are laid up in a life insurance. It's the same kind of thing because the cash value of life insurance now. Um You know, that's available for them for a multitude of things because you don't know necessarily what the future brings as far as college education or whatever.
But with life insurance, there's like triple benefits there because, like you said, the money's been growing tax deferred. You're way more flexible on what you use it for because you don't have those penalties, et cetera, et cetera. Plus, you know. life insurance policies for them when when they're that young are Incredibly inexpensive, and then they have the benefit of life insurance for the rest of their life if they keep the life insurance policy. But they become uninsurable when they're 20, 30, 40 years old.
or a lot of them don't have the sense to buy it. when they're twenty-five or thirty without somebody really pushing them to do it and you could set up you know, like a quarter of a million dollar policy, a half a million. A million on a On a grandkid or one of your children at a very low premium. And then that allows you to fund quite a bit of money in there. And then They just have that when they grow up.
and it's at the best possible rates. because they bought it when they were a kid and they were healthy.
So Um I don't want to oversell that, but there's you know, there's alternatives to these Trump savings accounts. Or you could have a little bit of both or a few of these options. We just wanted to talk about this for a subject today, and we also wanted to Yeah. Any questions you have? Yeah, I think it's absolutely spectacular.
The whole idea of looking at part of the purpose that God has given you the resources in your life, like he gave King David, that we can continue to invest those in future generations. Plus, at the same time, you're teaching them what they can do for their kids and their grandkids, and it just keeps going because I know your children obviously are very interested in taking care of their children for their college because they know what their dad did. Oh, sure. And they have life insurance that I set up for them years ago. with plenty of money in it.
Available, and again, I've probably kept that a little quiet with them. Because Well they're young and Doing the things that youngish people do. I just kind of have that in the background. You know what I'm saying? And I just have that in the background.
But they're going to reach a point And especially when I get a little older, then I'm going to get that to them. And I absolutely intend to set up these life insurance policies on my grandchildren. And fund those. Um I kind of have a little bit of all of these things and I'm I'm fortunate and that's Kind of what I spend my money on now is spoiling my kids with financial accounts, I guess. There you go.
So this is a good time to remind you this show is brought to you by CardinalGuide, CardinalGuide.com. And there you're going to find the seven worries tabs. And we talked about this is going to be under IRA. You're going to find a video along these lines, as well as Hans' book, The Complete Cardinal Guide to Planning, Foreign Living and Retirement, and the study guard that goes with it. And of course, the contact Hans or Tom page.
You got questions along these lines. Great show, Hans. Thank you. Thank you, and God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station.
All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone.
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BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and the Workbook.
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