Lights! Camera! Activate Trump accounts!

Contributions are now flowing after the Treasury Department launched its much-anticipated Trump account app this week. Any child under the age of 18 with a Social Security number can participate, and US citizens born between January 2025 and December 2028 can receive a $1,000 government deposit. Maximum annual contributions are set at $5,000, with the money automatically invested in low-cost index funds. It’s a fantastic approach to savings, according to Adam Bergman, a tax attorney and founder of IRA Financial, one that will give millions of young Americans a financial head start by the time they reach adulthood. The biggest impact of the accounts, though, could actually be felt many decades down the line, when the emerging generation of Americans is ready to retire.

“These new accounts are a way for families to supercharge their kids’ retirement savings,” Bergman told Retirement Upside. “Thousands of dollars invested at a very early age could easily grow to millions by the time someone turns 60 or 65.”

Trump Accounts as Retirement Vehicles

It’s not much of a stretch to connect the accounts with retirement goals, Bergman said, considering they are technically a type of traditional IRA with some added restrictions. Withdrawals are generally prohibited before the beneficiary turns 18, for example. Otherwise, they are essentially IRAs with no earned income requirement before age 18, and withdrawals before age 59.5 are subject to standard income taxes plus a 10% early withdrawal penalty. “Again, I’m a big fan, to the point that I would have liked to see some kind of automatic enrollment feature that kicked in when people get a Social Security number,” Bergman said. “That would help ensure that kids who are eligible get the $1,000 government deposit.”

Currently, the IRS has a priority order for individuals who may open a Trump account on a child’s behalf:

• Legal guardians are first.
• Parents are second, followed by adult siblings or grandparents of the beneficiary.

Specific policies also exist as to who can open an account for foster children, orphans, emancipated minors and wards of the state.

More Than One Option. Bergman stressed that Trump accounts aren’t the only option for saving on behalf of children. One alternative is 529 accounts, which offer significant tax advantages for education expenses. In addition, up to $35,000 in a 529 plan can now be rolled into a Roth IRA.

Brokerage accounts are another option that could compete with Trump accounts, as detailed in an analysis from the Bipartisan Policy Center. Although they lack tax deferral or tax-free withdrawals, investment returns are typically taxed at the long-term capital gains rate, which is substantially lower than ordinary income tax rates. As a result, the BPC found, a brokerage account invested in a low- or no-dividend mutual fund could potentially outperform a Trump account over long time horizons.

Not everything your clients hear on the pickleball court is true.

Social Security grabs a lot of headlines with warnings of looming benefit cuts and trust fund insolvency. Financial advisors also talk a lot about the program and the importance of clients’ claiming decisions. Less attention, however, is devoted to Medicare, according to Cole Craven, co-founder of the health care cost analysis and planning platform Move Health. That gap is often filled by Medicare myths and misconceptions that mislead retirees making coverage decisions, potentially resulting in excess costs or subpar coverage. It could be a chance for advisors to provide added value to clients.

“You’ve got the opportunity to save clients a lot of money and headaches and look like an absolute superhero, but most advisors steer clear of healthcare planning in general,” Craven said.

Welcome to Mythbusters

The first and most prevalent myth that Craven sees among financial advisors is an assumption that Medicare is overly complicated, which leads many to “simply not touch” the health care question when building a retirement income strategy. There are some nuances in the program, to be sure, but the initial claiming and subsequent reenrollment decisions aren’t exactly rocket science, either. Nor are the income-based rules that trigger surcharges.

“We need to pick up A, we need to pick up B, we need to pick up a Part D drug plan, and we need to figure out what we’re doing for supplemental coverage,” Craven said. “It’s either that, or going with the Advantage approach, but that’s about it. You just need to understand how those things work and how income affects costs.” A quick overview:

• Part A, which is premium-free for many, covers hospital care, skilled nursing facility care, hospice and some home health care.
• Part B covers outpatient care, doctor visits, preventive services, lab tests, X-rays and durable medical equipment.
• Advantage or Part C is an “all-in-one” alternative to original Medicare Parts A and B, offered by private companies and often including extra benefits like vision, hearing or dental.
• Part D helps cover the cost of outpatient prescription drugs and many vaccines.

The next myth is that Medicare is a low-quality option for health care in retirement, so people end up rushing to get treatment while they’re still on private insurance or an Affordable Care Act marketplace plan. In reality, waiting for Medicare to kick in before getting a potentially delayable procedure like a hip replacement can make a lot of financial sense. Another attractive (and oft-overlooked) feature is that traditional Medicare doesn’t have a network, which is an advantage over most private insurance. “You want to go to Mayo Clinic to get that mole on your back looked at? Great, go,” Craven said.

Remember to Revisit the Drug Plan. Finally, Craven said, people fail to realize that Medicare selections aren’t set-in-stone, one-time events. For example, Part D plans’ costs and schedules of covered drugs change every year, so it’s important to review and shop around.

It’s not just real estate that’s all about location, location, location.

Many clients worry they won’t have enough money saved to retire comfortably, assuming they’ll need more than $1 million by the time they leave the workforce. But where they spend their golden years can make a huge difference. Required nest eggs vary by hundreds of thousands of dollars depending on the state, according to an Investopedia analysis of federal data. Assuming the traditional 4% withdrawal rule, the typical American couple needs about $1.16 million saved for retirement, below the $1.46 million that Northwestern Mutual estimated earlier this year. But maybe there is no magic number.

“Chasing one is how good savers end up anxious,” said Jim Crider, founder of Intentional Living FP. Having a target early on is helpful, he said, but eventually advisors should shift the conversation toward taxes, withdrawal sequencing and spending habits. “The number also becomes a treadmill. Someone hits it and immediately moves the goalposts because the number was never connected to a life they actually wanted.”

Cross-Country Tour

If clients prefer big cities and beach life, the most expensive places to retire are New Jersey, Hawaii, California and Washington, D.C., each requiring couples to save more than $1.3 million. But if they’re fond of mountains and prairies, North Dakota, Arkansas and Iowa require just over $800,000. The analysis takes into account the spread between annual living expenses in each state and how much a couple gets in Social Security, which is roughly $38,000 a year right now:

• Housing is one of the biggest slices of annual living expenses, accounting for about 30%.
• The prices of goods and services don’t vary too heavily across the contiguous US, but in Alaska, where nest egg requirements surpass $1 million, food and utility costs are significantly higher. Plus, clients who need specialized medical care might have to travel out of state.

Florida may be the classic retirement destination, but it’s hardly a bargain, with annual expenses topping $80,000. Some advisors say clients should consider overlooked alternatives. John Bovard, owner of Ohio-based Incline Wealth Advisors, recommends Tennessee. “There’s no income tax, and it has some great attractions like the Smoky Mountains,” he said. “It has a relatively cheap cost of living, and the winters are not as severe.”

Better Safe than Sorry. Not every client earns as little as the average American, though (the US does account for nearly half the world’s millionaires). Catherine Valega, a CFP with Green Bee Advisors, works with high-net-worth clients on the coasts and recommends they have $3 million to $4 million saved by retirement. “Gone are the days where $1 million is enough,” she told Retirement Upside.