Trump Accounts: What Families Should Know

By David Blount CFP®, Rohan Rashid CFP®, and Kat Almonte

Trump Accounts are a new savings option designed to help children begin investing early. They can provide a valuable head start, particularly for children eligible for the federal government’s $1,000 contribution, but they may not always be the best place for a family’s additional savings.

What Is a Trump Account?

A Trump Account is a type of traditional IRA owned by a child and managed by a parent, guardian or other authorized adult while the child is a minor. An account can generally be established for a child under age 18 who has a valid Social Security number.

Children born between January 1, 2025, and December 31, 2028, may qualify for a one-time $1,000 contribution from the U.S. Treasury. A parent or guardian must elect to establish the account and claim the contribution.

Parents, grandparents and others may contribute, subject to a combined annual limit of $5,000. Employers may contribute up to $2,500, which counts toward that limit. Unlike a regular IRA, the child does not need earned income during the account’s growth period.

The money must initially be invested in qualifying low-cost funds that track broad indexes made up primarily of U.S. companies. Withdrawals are generally restricted until the year the child turns 18, when the account begins operating under traditional IRA rules.

Potential Benefits

The most immediate benefit is the $1,000 federal contribution available to eligible children. Families may also receive contributions from employers, state or local programs, charitable organizations or other sources when available. These contributions can give the child a meaningful head start without requiring the family to fund the entire account.

Trump Accounts also provide tax-deferred growth and allow contributions before the child has earned income. Parents and grandparents can begin investing while the child is still very young, giving the money many years to potentially compound before adulthood rather than waiting until the child is eligible for a custodial IRA.

The investment structure is designed to be simple, diversified and low-cost. Broad U.S. stock index funds provide exposure to many companies without requiring families to select individual investments or manage a complicated portfolio. This can make the account relatively easy to establish and maintain as one part of a long-term savings strategy.

Special Tax Rules: Exemption from IRA Aggregation

Normally, the IRS aggregates all of an individual’s Traditional IRAs together when calculating the tax liability of a withdrawal or Roth conversion (the "pro-rata rule"). Trump Accounts are isolated from this requirement, creating a valuable planning opportunity:

• Isolated Basis Tracking: Non-deductible family contributions create tax basis (after-tax money) that stays strictly within the Trump Account, rather than blending with other retirement balances.

• Opportunity for Low-Tax Roth Conversions at 18: When the child turns 18, parents or young adults might consider converting the account to a Roth IRA. Because the child is typically in a very low tax bracket and the non-deductible family contributions reduce the taxable amount of the conversion, locking in tax-free future growth can be remarkably tax-efficient.

• Preserves Future Roth Strategies: Holding a former Trump Account won't interfere with or trigger penalties on future "Backdoor Roth IRA" conversions executed with standard Traditional IRAs later in adulthood.

Potential Drawbacks

The primary concern is that the tax benefits may be less attractive than those offered by other accounts. Family contributions are not deductible, and investment earnings may be taxable when withdrawn. A 529 plan offers tax-free qualified education withdrawals, while a custodial Roth IRA can eventually provide tax-free qualified withdrawals once the child has earned income.

The money is also difficult to access. Withdrawals generally are not permitted before the year the child turns 18. After that, taxable withdrawals may face a 10% early-withdrawal penalty unless an exception applies.

Investment choices are limited primarily to U.S. stock index funds. This keeps costs low but prevents families from adding investments such as bonds or international funds, or gradually reducing risk as the child approaches adulthood.

Because of these limitations, many families may find Trump Accounts most valuable for collecting government, employer or charitable contributions rather than as the first place to direct all of their own savings.

How Do Trump Accounts Compare With Other Options?

A Trump Account does not have to replace the savings strategies families already use.

A 529 plan may be more attractive when the primary goal is education because qualified withdrawals are tax-free, the account owner retains control and some states offer additional tax benefits.

A UTMA or UGMA account provides greater flexibility because the money can be used for nearly anything benefiting the child. However, the assets belong to the child and eventually transfer to the child’s control.

A custodial Roth IRA can be especially valuable once a child has earned income. Contributions are limited by the child’s earnings, but qualified withdrawals can eventually be tax-free.

A parent-owned brokerage account offers the most control and flexibility, although investment income and realized gains may be taxable each year.

Is a Trump Account Worth Opening?

For children who qualify for the $1,000 federal contribution (born between January 1, 2025, and December 31, 2028), opening a Trump Account may make sense even when the family plans to save additional money elsewhere. The same may be true when an employer, government program or charitable organization is willing to contribute.

The more complicated decision is where parents and grandparents should direct their own ongoing savings. A 529 may be better for education, a custodial account may provide greater flexibility, and a Roth IRA may offer stronger long-term tax benefits once the child begins working.

Trump Accounts can be a useful part of a child’s financial plan, but they should not automatically replace every other savings option.

We Can Help You Choose the Right Account

Choosing how to save for a child’s future can be surprisingly complicated. The right account depends on what the money is intended for, when it may be needed, how much control the family wants to retain and which tax benefits matter most.

Our team can help you compare Trump Accounts, 529 plans, custodial accounts, Roth IRAs and other strategies to create a savings plan that fits your family’s goals.

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This material is provided for general informational purposes and is not intended as individualized tax, legal or investment advice. Additional guidance regarding Trump Accounts may be issued. Investors should consult their financial, tax and legal professionals regarding their individual circumstances.