Ryan Inman@ryaninman
Dave Ramsey is telling people to skip the Trump Account.
He's wrong. And if you're a physician, especially a practice owner, ignoring this account could cost your kid $3,100,000 out. Tax free.
Let me walk you through the math.
If you own your practice and take a W2, your practice can contribute $2,500 per year to your child's Trump Account. That contribution is deductible by the practice AND excluded from your taxable income. You don't pay a dime of tax on it going in.
Then you personally contribute another $2,500 per year after tax to hit the $5,000 annual cap. Don't own a practice, no problem, you can personally contribute the $5,000/yr (family can also assist!)
Do that from birth to age 18. Add the $1,000 government seed on day one. Invest in a low cost S&P 500 index fund (the only option allowed, which is perfect for a long time horizon). Assume 7% average annual returns.
At age 18, your kid has approximately $181,000 in that account.
Here's where it gets interesting.
Your kid turns 18. They're a college freshman with little to no income. You convert the entire Trump Account to a Roth IRA. The tax bill is roughly $20,000. You gift your kid the cash to cover the tax so the full $181,000 stays inside the Roth.
From that moment forward, every dollar of growth is tax free. Forever.
Without contributing another $1, account value...
At age 30: ~$356,000
At age 40: ~$700,000
At age 50: ~$1,377,000
At age 60: ~$3,100,000
At a 4% withdrawal rate, that's $124,000 per year in tax free income. For life. From an account your child never contributed a single dollar to.
And before someone says "but what if the market doesn't cooperate"... the 4% rule has been stress tested through Monte Carlo simulations across thousands of market scenarios including the Great Depression, the dot com crash, 2008, and COVID. At a 4% withdrawal rate with a diversified portfolio, the probability of the money lasting 30+ years exceeds 95% in virtually every credible study. For a 60 year old, that means the money outlasts them.
The total out of pocket cost to the parents? $45,000 over 18 years if the practice covers half. The practice gets the tax deduction on its half. You don't recognize the income. $90,000 over 18 years if fully personally funded without any outside help.
$45,000 in. $3,100,000 out. Tax free.
Dave Ramsey gives advice for people digging out of credit card debt. That's his lane and he's good at it. But when it comes to tax advantaged planning for high income physician families, he's not even in the same zip code.
Don't take financial planning advice from someone who doesn't understand your situation.
