‘Wait Till They’re No Longer a Dependent’: Wes Moss’s Warning on the Trump-to-Roth Hack

On the September 15 Ask An Advisor segment of The Clark Howard Podcast, Wes Moss sized up the strategy families keep asking about: opening a Trump Account for a newborn, maxing it every year, then converting the balance to a Roth IRA once the kid turns 18. (Wes Moss is the Chief Investment Strategist for Capital Investment Advisors and a Managing Partner of the firm.) His numbers were blunt. “5K a year, which is the max into the Trump account over 18 years is 90K, maybe that’s grown to 200.” Then came the warning that most online chatter around this “hack” skips entirely.

“Wait till they’re no longer a dependent of yours and they’re in their first couple of years of work and their income is low because they’re just starting out. That’s when you would slowly convert so that it doesn’t impact your tax rate.”

If you convert while your 21-year-old is still a full-time student on your return, you can turn a legal, near-tax-free move into a bill taxed at your marginal bracket.

Moss Is Right, and the Kiddie Tax Is Why

The hack works. The timing advice is the whole game. Trump Accounts convert to traditional IRAs when the beneficiary turns 18, making them eligible for Roth conversion at any custodian, including Charles Schwab (NYSE:SCHW | SCHW Price Prediction).

Here is the mechanic Moss is guarding against. A Roth conversion is a taxable event. The pre-tax dollars you move from the traditional IRA into a Roth get added to the beneficiary’s ordinary income for that year. Under kiddie tax rules, unearned income above a small threshold for a dependent child (including a full-time student under age 24) is taxed at the parents’ marginal rate. Convert too much while the kid is still on your return and the IRS treats that conversion income as if it landed in your bracket.

Run the numbers Moss put on air. Say the account is worth $200,000 when the child turns 21. Parents earning $220,000 sit in the 24% federal bracket. Convert the whole $200,000 in one year while the child is a dependent student, and roughly $180,000 of that gets pulled toward the parents’ rate under kiddie-tax mechanics. That is a federal tax bill around $40,000 on a move sold as “tax-free.”

Moss, who takes listener questions at wesmoss.com/ask, lays out the framework in The Retire Sooner Method.

Now wait three years. The same child graduates, takes an entry-level job at $45,000, files independently, and is no longer a dependent. Convert $15,000 to $20,000 a year over five to eight years and most of it fills the 12% bracket, with a slice at 22%. Same $200,000 balance. Very different lifetime tax.

Dependency Status Decides Everything

One factor flips the math: whether the child is still your dependent in the conversion year. If yes, unearned income above the kiddie-tax threshold gets taxed at your bracket. If no, the conversion is taxed at the child’s own bracket, which for a new grad earning $40,000 to $55,000 typically tops out at 12% federal.

Each Roth conversion also starts its own five-year holding period before converted principal can be withdrawn penalty-free. For a 24-year-old converting in tranches, that clock is irrelevant to retirement, but it matters if the beneficiary tries to tap the account early. The same low-bracket window Moss is describing shows up again decades later, between someone’s last paycheck and their first RMD, and we sized up that second window in a free Roth guide here: The Roth Window.

How the Show Answered Its Own Critic

Ten days before Moss ran this math, a listener used Clark Howard’s “Clark Stinks” segment to argue Clark had been too hard on Trump Accounts precisely because “the entire balance accumulated in a Trump account is convertible to a Roth IRA for the beneficiary at any time after age 18.” The compounding case is real. A broad US equity index like the S&P 500 gained 255% over the past ten years, and a six-figure Roth in someone’s early 20s left alone for 45 years is genuinely life-changing. Moss’s kiddie-tax caveat is what the caller and Clark both left off the table.

What to Actually Do

1. Confirm dependency status for the conversion year. If the beneficiary is a full-time student under 24 and you provide more than half their support, kiddie-tax rules apply to unearned income above the annual threshold. Check the current threshold on IRS.gov before converting.
2. Model the conversion in tranches. Use a tax calculator to find the dollar amount that fills the child’s 12% bracket without pushing into 22%. Convert that annual amount in tranches and let the rest keep compounding.
3. Time the first conversion to the first low-income working year after graduation, before raises, marriage, or a working spouse push the bracket higher.
4. Open the receiving Roth IRA at the same custodian holding the traditional IRA to make the in-kind transfer clean. Track each conversion’s five-year clock separately.

The Trump-to-Roth hack is legal, powerful, and mostly free, but only on Moss’s timeline. Convert while your kid is still your dependent and you hand the IRS the tax break you were trying to build.

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