The account nobody told you about (it's not what you think)

On July 4th, the Treasury wired $1,000 into the accounts of more than 500,000 American kids.

Two days later, for the first time in history, a president rang the opening bell from the Oval Office. The NYSE and Nasdaq opened together, which had never happened before either. Six million families signed up. $1.4 billion in seed money committed. Brad Gerstner took a victory lap on All-In, and he earned it. Four years of work, sketched at his kitchen table with his sons in the fall of 2020, signed into law, live on your phone.

Everyone told you about that account.

This letter is about the account nobody told you about. It has no bell. No president's name on it. It has been sitting at every brokerage in America for a hundred years, and it is the account Gerstner opened for his own sons at birth.

The plain taxable brokerage account.

Stay with me, because once you see what this boring account does, you will understand what to do with the shiny one.

The love letter

Start with what it does not have.

No contribution limit. An IRA caps you at $7,500. The new kids account caps at $5,000. The brokerage account takes five grand or five million and nobody counts.

No compliance. No plan document, election form, basis worksheet, or income phaseouts. You open it in ten minutes and it never once sends you homework.

No lock. It is your money at 25, at 40, at 59 and a half minus one day. No penalty. No list of qualified expenses. No waiting for a birthday. Your kid needs a down payment at 31? Sell shares Tuesday, wire Wednesday.

No forced exit. An IRA makes you sell through required distributions, on the government's schedule, at ordinary rates. A brokerage account never makes you do anything. You can hold a position for sixty years out of pure stubbornness.

No menu. Hold the index fund. Hold munis. Hold twelve shares of the company your kid cares about. The new account holds one flavor of index fund until 18. The brokerage can hold that same fund, plus everything else.

Now what it gives you.

Capital gains rates. The friendliest rates in the code for investment income: 23.8 at the top, 15 in the middle, and ZERO at the bottom. A kid or a young adult with modest income can sell winners, pay nothing, and buy them right back with a fresh basis. A tax free step up while you are still alive, available every year the income is low.

Tax loss harvesting. The market drops and hands you deductions. You bank the loss, stay invested, and offset gains for years. Try that inside a wrapper. There is nothing to harvest.

The charity double dip. Hand appreciated shares to a Donor Advised Fund. Deduct the full value at your rate. The gain disappears. Nobody ever pays it, and if you love the stock, buy it back at a higher basis.

The step up. Hold to death and the gain evaporates for your heirs. The single most generous rule in the entire code, and it only works on assets you hold outright. No IRA of any kind ever gets it.

Boring. Liquid. Taxed at the best rates available. And free at the exit twice, once through the 0% bracket in the low years and once at the step up in the last one.

That is the account. Hold that picture.

Now, this week's account

The Trump account is a traditional IRA for kids under 18, built by new code section 530A. Anyone can put in up to $5,000 a year combined. The money sits in a broad US index fund, locked until 18, and then it becomes a plain traditional IRA. Ordinary income out, 10% penalty before 59 and a half.

Here is the trade, stripped to one sentence.

You trade capital gains rates for ordinary rates, you surrender every item on the list above, and in exchange the dividends compound without tax along the way.

That is the whole deal. On a broad index fund yielding 1.2%, the tax you skip is 15% of that. Eighteen basis points a year.

So I ran what the drag costs a kid's brokerage account. $5,000 a year for 18 years at the historical return the government's own website uses, kiddie tax and all.

Forty two dollars. Total. Across all eighteen years. At 7% it rounds to zero, because you need $225,000 of fund before it even throws off enough dividends to reach the $2,700 kiddie threshold, and qualified dividends keep their character at the parent's rate anyhow.

Now the other side of the trade. Their own website shows the maxed account at about $13 million at 55. The part the page skips: $90,000 of that is your basis, and the other $12,910,000 is ordinary income. That is a $4,776,700 federal tax bill. In California, $6.5 million. The same gain at capital gains rates costs about $4.8 million in combined federal and California tax. The wrapper costs your kid $1.7 million, using their number.

My own boring math at 7%: the brokerage beats the account by $370,368 if the kid sells everything at 65. If the kid holds to a step up, by $1,103,478.

To be exact about one thing, because it matters: your $5,000 does not get taxed twice. Individual contributions create basis and basis comes back tax free. Grandma's birthday check gets the same treatment, no deduction for her, basis for the kid. What never comes back clean is the growth. Every dollar of it, ordinary income, forever.

You paid $42 to avoid $1.7 million. And you gave up the liquidity, the harvesting, the 0% bracket, the DAF play, and the step up to do it.

The rule, and the two exceptions

Here is the decision tree in one line.

After tax dollars go in the brokerage account. The only dollars that belong inside the wrapper are dollars that were never taxed.

There are two kinds.

FREE MONEY.

Kids born 2025 through 2028 get $1,000 from Treasury. Form 4547 or trumpaccounts.gov, ten minutes. The Dells committed $6.25 billion at $250 a kid. Gwynne Shotwell committed hundreds of millions of SpaceX stock. Brad Gerstner set aside around $100 million to cover every kid under 5 in Indiana. None of it carries basis, all of it comes out taxable someday, and all of it cost you nothing. Take it.

DEDUCTED MONEY.

This is the interesting one, and David Sacks spent five minutes of that same All-In episode on it, reading from what he called CPA Twitter.

New code section 128. Your business can put $2,500 a year into your kid's account through a written Trump Account Contribution Program. Deductible to the business, excluded from your W-2. If you own an S-Corp and pay yourself a wage, your business is an employer and your kid is your dependent. No job, no timesheet, no toddler on the payroll doing "modeling." The kid does nothing but exist, which newborns are excellent at.

Congress copied the nondiscrimination framework from dependent care plans and left out the 25% owner concentration cap that kills those plans for most owners. Solo and spouse-only S-Corps have nobody to test against.

And this is not theoretical. Intel, Robinhood, and Micron are already running employer programs. Steak 'n Shake pledged $1,000 into a Trump Account for every employee's kid born 2025 through 2028.

This money picks a lane. Deduction in, ordinary out. That is a traditional IRA and a fair trade. But it gets better, because at 18 the account converts.

The arc, still at 7%: deduct about $865 a year at a mid-30s marginal rate with state. $2,500 a year becomes $85,000 at 18. Section 128 money carries no basis, so it is 100% pre-tax, which is what you want. The kid converts to Roth in chunks through the mid twenties, about $158,000 at ~22%, for $35,000 of tax across seven returns. Then it never gets taxed again. At 65 that Roth holds $2,043,827. Tax free. From $2,500 a year. Spouse on real payroll, double it.

Even the lazy ending wins. Kid never converts, pays a 24% retirement bracket: $1.55 million net, and the business deducted every dollar going in. Same pre-tax money routed through your pocket to a brokerage: $974,097. The ladder beats it by $1.07 million.

One correction to the pod, because Sacks said convert while the kid sits in the zero bracket in college. Section 1(g) disagrees. Conversion income is unearned income, and a dependent full time student under 24 converts at YOUR rate, not theirs. FAFSA points the same direction, since a conversion in the aid window counts as student income at up to 50%. So the calendar writes itself: contribute from birth, touch nothing through college, convert 24 to 30, once the kid is self supporting and past the kiddie rules.

The fine print, because accuracy is the product: FICA applies to the $2,500, about $95 a year of Medicare above the wage base. The IRS reserved the employer program regs in March, so build the written plan before you rely on it. And if you have a team, average benefits to regular employees must run at least 55% of what the highly compensated get, under the §128/§129 nondiscrimination rules. Fund your kid, fund theirs. Cheaper than another pizza party and a better recruiting line.

The real lesson

Lifetime Effective Tax Rate. Total tax you pay across your life divided by total income you earn. The only tax number that matters.

Chamath got half of this on the pod. He called the first third of life the easiest compounding in the world, the part of the hill everyone cuts off. True. It is also the cheapest tax real estate in the code. All-In saw the compounding and missed the rates. The rates are where the money is.

A kid's first 18 years are the lowest rate years a human being ever gets. One account spends those years harvesting gains at zero in a flexible pile the family controls. The other spends them building a bill.

I have watched the bill come due a hundred times. A guy deducts 401k contributions at 18% through the 90s, dies at 84 with $2 million in an IRA, and his kids drain it at 55, peak earnings, in California, on the SECURE Act's ten year clock. North of 50%. Saved at 18, paid at 50.

Putting your own after tax money in this week's account is that trade with the deduction deleted.

The playbook

Open the boring account first. It is the default for every after tax dollar.

Take the free $1,000.

Route $2,500 through the business under section 128, once your CPA blesses the written plan.

The day your kid can do real work, stack the wage Roth on top: first $16,100 of wages at zero federal under the 2026 standard deduction, $7,500 into a Roth. Sole props and parent partnerships skip FICA on kids under 18. S-Corps do not. Run it before you build it.

529 for college money.

Everything else, and it should be most of it, goes in the account Gerstner gave his own sons.

And if you want the section 128 plan document, the payroll setup, and the conversion calendar handled instead of homeworked, that is the work we do at Visor. Reply to this email and I will get you to the right person. The clever door just got advertised to a few million podcast listeners. The boring account will stay unadvertised forever.