Trump Accounts are a new savings option for children, structured as a special form of traditional individual retirement account (IRA). They are designed to allow families, employers, governments, nonprofits, and others to contribute toward a child’s long-term financial future.
And, as of a few days ago, you can now begin making contributions to these accounts.
For parents and grandparents, the question is not only whether to open an account, but also whether it makes sense to prioritize contributions to these accounts in lieu of other long-term savings vehicles.
One quick disclaimer before we get into the nitty-gritty: Consult with a qualified tax advisor to understand how Trump Account rules, gift tax reporting, withdrawal taxation, financial aid, and benefit-program considerations may apply to your family’s specific situation.
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How Trump Accounts Work
A Trump Account may be opened for a child who has not turned 18 before the end of the calendar year in which the account election is made. The child must have a valid, work-authorized Social Security number, and a child may have only one Trump Account. An authorized individual, such as a parent, legal guardian, adult sibling, or grandparent, may open the account.
The IRS says parents, guardians, and other authorized individuals can elect a child by signing in to an IRS account and submitting Form 4547. The IRS page specifies that users will need an ID.me account, the child’s Social Security number, date of birth, and address.
Children born between January 1, 2025, and December 31, 2028, who are U.S. citizens with valid Social Security numbers may be eligible for a one-time $1,000 federal pilot program contribution.
It’s important to note that the one-time contribution is made by the Treasury, but the account opener “must be able to claim the child as a dependent for purposes of the child tax credit,” per the Congressional Research Service (CRS).
Who Can Contribute?
One of the most notable features of Trump Accounts is that contributions are not limited to the child’s own earned income. That makes them different from ordinary IRAs, which generally require work-related earnings.
During the account’s “growth period,” generally before the year the beneficiary turns 18, parents, grandparents, other relatives, friends, and the child may contribute. The combined annual limit for ordinary contributions is $5,000 in 2026, with inflation adjustments after 2027. And if contributions are coming from multiple sources, contributors must coordinate because the contribution limit applies to the account as a whole, not separately to each contributor.
Contributions from individuals (parents, friends, family, the child, etc.) are generally not deductible for the contributor or the child. However, investment earnings inside the account are tax-deferred until withdrawal. CRS notes that ordinary contributions made with after-tax dollars are generally not taxed again when withdrawn, but investment gains are taxable when distributed.
Employers may also contribute up to $2,500 per employee per year to the Trump Account of an employee or the employee’s dependent. Those employer contributions count toward the $5,000 annual account limit.
How the Money Is Invested
Before the child reaches the end of the growth period, Trump Account assets must be invested in qualifying mutual funds or exchange-traded funds.
These investments must track the S&P 500 or another index made up primarily of U.S. companies. They may not be sector-specific funds, individual stocks, bonds, or primarily foreign indexes. CRS also notes that qualifying investments must minimize fees, including a stated annual fee cap of 0.1% of the fund balance.
For the time being, the default investment is the State Street SPDR Portfolio S&P 500 ETF (SPYM), but new options are expected to become available soon.
Broadly speaking, a low-cost diversified ETF like SPYM is a perfectly reasonable allocation for a long-term investment, although these accounts offer fewer investment options than a 529 or custodial account.
When Can the Child Use the Money?
Trump Accounts are not short-term savings accounts. Withdrawals generally are not allowed during the growth period, except for a rollover to an ABLE account for an eligible disabled beneficiary in the year the beneficiary turns 17.
After the growth period ends, the account is generally treated like a traditional IRA. Distributions may be taxable, and withdrawals before age 59½ may be subject to an additional 10% tax unless an exception applies. CRS lists exceptions that may include higher education expenses, up to $10,000 for a first home, up to $5,000 for birth or adoption expenses, up to $1,000 per year for emergency personal expenses, certain medical expenses, health insurance premiums during unemployment, disability, terminal illness, and other circumstances.
This makes Trump Accounts more flexible than a retirement-only account, but less flexible than a standard taxable account. These are best understood as long-term wealth-building accounts.
Potential Benefits for Parents and Grandparents
The biggest advantage is time. A contribution made when a child is young may have many years or even decades to compound. Because earnings are tax-deferred, small, periodic investments (or even a one-time investment) can compound meaningfully over the years.
Trump Accounts may also appeal to grandparents who want to make gifts that are earmarked for a child’s future. Unlike some education-focused accounts, Trump Accounts are not limited to college expenses. Once the child reaches adulthood, the account has the potential to support a number of major life goals, including education, a first home, or retirement.
Another benefit is that the account can receive contributions even if the child has no earned income. That is a major distinction from a traditional IRA or Roth IRA opened directly for a minor.
Potential Drawbacks
Trump Accounts will not be the best choice for every family. Unlike a traditional IRA, individual contributions are not deductible, but withdrawals of investment gains are generally taxed as ordinary income.
A custodial account, on the other hand, is subject to capital gains taxes on (realized) investment gains and investment distributions, which may be at a lower rate than income taxes, depending on the holding period.
There are also no contribution limits to custodial accounts (although gifted contributions may be subject to reporting requirements or reduce the lifetime estate and gift tax exclusion).
The annual contribution limit also requires coordination. If parents contributed $3,000 and grandparents contributed $3,000 in the same year, the account would exceed the initial $5,000 contribution limit. CRS notes that excess contributions may be subject to a 6% annual penalty until corrected.
Investment restrictions are another consideration. Families that want bonds, international diversification, individual stocks, or a customized portfolio during the child’s early years will need to diversify outside of the Trump Accounts.
How Trump Accounts Compare to Other Child Savings Options
A 529 plan may still be the stronger first choice when the main goal is education funding, especially because qualified education withdrawals from 529 plans can be tax-free. A custodial brokerage account may be better when the family wants maximum flexibility, though it lacks the same tax deferral and may create “kiddie tax” considerations. A Custodial Roth IRA or Traditional IRA offers similar tax advantages (and more investment options) once the child has earned income.
That said, the Trump Accounts are accessible, long-term wealth-building tools, especially for those who can take advantage of the initial $1,000 seed contribution.
Should You Contribute?
If you have a young child who is eligible for the Treasury-funded $1,000 initial contribution, it’s certainly worth investigating further (the official Trump Accounts website is a good place to start; the website estimates that just the initial contribution would be worth $6,000 when the child reaches 18 and $243,000 when the child reaches age 55), even if that initial contribution only ends up being part of your child’s larger financial picture.
But beyond that initial funding, whether investing via these accounts is the right move or not will come down to a plethora of other considerations, such as how much you (and others) plan on contributing, your investing priorities, and whether you’re comfortable placing limits on your ability to utilize those funds (without being subject to early distribution penalties) for needs outside of education or retirement.
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