The Tax-Free Chassis

The Child

Compare against The tax rules change with the wrapper. All three are shown regardless — this sets which one leads.

Annual deposit

Years to distribution Male, age 0, California. Age 18 is the first year a Trump Account can be touched at all.

Annual growth ratePercent.

Federal seed contribution $1,000 for children born 2025–2028. Pre-tax — it creates no basis.

Tax at Distribution

Parents' federal rate

California rate

Kiddie tax — unearned income at the parents' rate Early-distribution penalty (10% federal + 2.5% CA) Model the FAFSA effect

The Policy

Illustrated cash value at $600/yr From the carrier illustration. The charge structure is solved from this figure rather than assumed.

Death benefit

The question

Which one hands the family more tax-free money at 18?

Same deposit, same years, same growth rate. The Trump Account also collects the $1,000 federal seed — and still arrives smaller than its balance suggests.

Trump Account — net

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Custodial brokerage — net

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Policy cash value — tax-free

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Protection in force meanwhile

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What this means

Where the money goes

The balance and what you keep are different numbers

Kept

Income tax

Penalty

Financial aid forgone

The Trump Account year by year

Beyond the numbers

What each one can and cannot do

	Trump Account	Custodial brokerage	Indexed universal life
Locked away from the parents	✓Yes — and that is the point. Nothing comes out before the year the child turns 18, for anyone, for any reason.	×The custodian can spend it on the child at any time, and it vests outright at majority.	~The owner controls it. A trust or a grantor arrangement can lock it as tightly as you want.
Tax on the growth	×Ordinary income on the seed and every dollar of growth.	~Dividends yearly; gains at capital rates, plus California as ordinary.	✓None while the policy stays in force — basis first, then loans.
Penalty before 59½	×10% federal + 2.5% California, unless an IRA exception is met.	✓None.	✓None at any age.
FAFSA	×The distribution is student income — assessed at up to 50%.	×A student asset — assessed at 20% every year it exists.	✓Not a reportable asset. A loan is not income.
If a parent dies young	×Worth its balance. The deposits stop.	×Worth its balance. The deposits stop.	✓Pays the full face amount if written on the parent. The plan finishes itself.
Living benefits	×None.	×None.	✓Riders accelerating the death benefit on terminal, chronic or critical illness.
Market downside	×Full exposure — statute requires a US equity index fund. No conservative option exists.	~Full exposure, but you choose the allocation.	✓0% floor on index credits. Charges still apply.
Insurability	×Not secured.	×Not secured.	✓Locks the best rate class the child will ever qualify for, permanently.
Cost of the guarantee	✓Fund expense only.	✓Fund expense only.	×Loads, policy fees and cost of insurance — brutal on a thinly funded policy.

How much it takes

A tax-free chassis you underfund is just an expensive one

A policy carries fixed annual charges that do not shrink when the premium does. At a small contribution those charges consume most of the growth; at a larger one they spread across a much bigger base. This is where that changes.

The Client

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The Money

Lump sum to start with What is already in the qualified plan today.

Added each year

For how many years

The Timing

Years until income begins

Measure through age

Assumptions & illustration figures

The Client

Age · gender · state

1 · Leave It Where It Is

Growth while accumulatingPercent.

Growth while drawing income Percent. Affects only what is left at the end, not the income or the tax.

Annual distribution ratePercent of the balance when income begins.

Tax on every distributionPercent.

Tax on what heirs receivePercent.

2 · Convert to Roth

Effective tax rate on the conversion Percent of the balance, paid up front. This is the blended rate across the whole conversion, not a single bracket. Converting all at once pushes most of the balance into the top bracket; converting gradually over many years can hold it lower.

3 · Retirement Optimization

Which version to show

Realistic already includes the flat years a capped account normally has. Stressed adds a bad start on top of that.

Crediting rate used here Percent. Deliberately below the illustrated rate.

Early years credited at 0% A poor start, when it does the most damage.

Rate the illustration assumed

Set from the carrier illustration and scaled with the contribution. A carrier illustration governs the actual figures.

Annual income Percent of total contribution, tax-free, every year.

Death benefit Times total contribution.

Cash value when income begins From the illustration. Used only to show the rate the policy is drawing at.

Death benefit at the measured age, net of loans Times contribution, after the loans taken for income. Your illustration already reports it this way.

Tax paid, once Percent of the contribution.

4 · Show the leveraged version

More income. Zero tax.

These policy figures have been reduced on purpose

What this means

Why the policy can pay out at a higher rate

The whole picture

If you live to 88

The number on the statement

Your distribution and your income are not the same number

Over your lifetime

What you receive, year after year

Leave it where it is

Convert to Roth

Retirement optimization

Year by year