What Parents Need to Know About the New “Trump Accounts” for Kids
Starting this year, families will have access to a new savings vehicle created specifically for children: the Trump account. These accounts were authorized under the One Big Beautiful Bill Act and are designed to help children enter adulthood with a strong financial foundation and early exposure to saving and investing.
Below is a comprehensive overview of how Trump accounts work, who is eligible, and how these accounts compare with other popular savings options like 529 plans, UTMA accounts, and Roth IRAs for kids.
What Is a Trump Account?
A Trump account is a new type of tax-advantaged IRA designed for children under age 18. It works much like a traditional IRA but is specifically designed to allow contributions and growth even for children without earned income.
Who Is Eligible?
A child qualifies for a Trump account if they:
Are a U.S. citizen
Have a Social Security number
Are under age 18 on December 31 of the year the account is opened
Do not already have another Trump account (limited to one per child)
How Do You Open a Trump Account?
Parents or legal guardians can open a Trump account via:
IRS Form 4547, submitted at any time, or
Families may want to file Form 4547 with their 2025 tax return, so the account is ready to fund when contributions begin in July 2026.
When Do the Accounts Launch?
Trump accounts become available in 2026, but no contributions are allowed before July 4, 2026.
Contribution Rules
Annual Contribution Limit
Up to $5,000 per year per child from individuals and employers combined
Employer contributions up to $2,500
No earned income requirement
No income restrictions for contributors
Additional Contributions
Contributions from government entities or charitable organizations do not count toward the $5,000 cap
Federal pilot program contributes $1,000 for children born January 1, 2025 – December 31, 2028
Investment Options
Trump Accounts invest in low-cost, broad U.S. equity index funds (ETFs or mutual funds) that track the overall U.S. stock market (like the S&P 500), must have low expense ratios (≤ 0.10%), and cannot use leverage, with specific investment options to be approved by the Treasury Department.
Withdrawal Rules
During the “growth period” (before the year the child turns 18):
Withdrawals are not allowed
Once the child reaches 18:
The account is treated like a traditional IRA
But it does not need to be aggregated with other IRAs for tax/penalty calculations if kept separate, offering planning flexibility.
Tax Treatment
Individual contributions: after-tax; only earnings taxed at withdrawal; only earnings taxed at withdrawal
Government/employer contributions: pre-tax; full value taxed at withdrawal
All investments grow tax deferred until distributed-deferred until distribut
This leads to the potential mixed tax sources within the account—some tax-free upon withdrawal, some fully taxable. -free upon withdrawal, some fully taxable.
Potential Drawbacks
Trump Accounts inherit nearly all the disadvantages of traditional IRAs:
Required Minimum Distributions (RMDs)
The 10-year rule applies to most beneficiaries after the original owner dies
Taxation at ordinary income rates (from pre-tax sources), not capital gains rates
Because these accounts may be funded at birth and allowed to grow untouched for decades, the IRA-style rules can create significant future tax drag-style rules can create significant future tax
How Trump Accounts Fit into a Family’s Financial Plan
Trump accounts can complement, not replace, other savings tools. Potential benefits include:
Early investment exposure for children
Compound growth over many years
Eligibility for outside contributions (e.g., employers, charities, government)
Ability for working teens to maintain both a Trump account and a traditional/Roth IRA simultaneously
Comparison Chart: Trump Account vs. 529 Plan vs. UTMA vs. Roth IRA
The chart below helps parents decide how Trump accounts stack up against other popular children’s savings strategies.
| Feature | Trump Account | 529 Plan | UTMA Custodial Account | Roth IRA for Kids |
|---|---|---|---|---|
| Primary Purpose | Tax advantaged savings for kids, supporting long-term financial readiness. -advantaged savings for kids, supporting long-term financial readiness. | Education focused on tax-advanced savings -focused tax-advantaged savings. | Flexible general-purpose savings/investing for minors.-purpose savings/investing for minors. | Retirement savings for kids with earned income. |
| Eligibility | Must be a U.S. citizen, have an SSN, and be under 18 when opened. | No age or income restrictions. | Minor under state's age of majority. | Child must have earned income. |
| Annual Contribution Limit | $5,000/yr from individuals & employers; no earned income is needed. | High state specific limits (often $300k+ lifetime).-specific limits (often $300k+ lifetime). | No formal limit; gift tax rules apply.-tax rules apply. | Up to earned income or annual IRS limit. |
| Government / Incentive Contributions | $1,000 federal seed for children born 2025–2028; charitable/government contributions don’t count toward limit. | Some states offer tax incentives. | None. | None. |
| Investment Options | Limited to Treasury approved low-cost U.S. index funds/ETFs. -approved low-cost U.S. index funds/ETFs | Wide market-based options depending on plan.-based options depending on plan. | Very flexible; broad asset choice. | Broad investment choices via custodian. |
| Tax Treatment | Tax deferred growth; taxation depends on source of contribution. Taxed as ordinary income rates.-deferred growth; taxation depends on source of contribution. | Tax-free growth & withdrawals for education.-free growth & withdrawals for education. | Earnings taxed annually; kiddie tax may apply. Typically taxed at capital gains rate. | Tax-free growth; qualified withdrawals tax-free.-free growth; qualified withdrawals tax-free. |
| Withdrawal Rules | No withdrawals before 18; then like a traditional IRA but kept separate for tax calculations. | Tax-free for education; penalties for nonqualified uses.-free for education; penalties for nonqualified uses. | Funds usable for any purpose once a child controls account. | Contributions accessible anytime; earnings limited until qualified. |
| Financial Aid Treatment | Likely similar to custodial IRAs after age 18. | Favorable (typically parent asset). | Less favorable (student asset). | Depends on age and custodial structure. |
| Best Use Case | Supplementary long-term savings, especially for eligible children receiving the $1,000 seed.-term savings, especially for eligible children receiving the $1,000 seed. | Education focused on saving.-focused saving. | Flexible inheritance/gifting structure. | Long-term retirement savings for working teens. |
Trump accounts represent a unique new tool for supporting a child’s financial future—especially for those eligible for the federal $1,000 contribution. They also complement traditional savings vehicles like 529s, UTMAs, and Roth IRAs.
If you’d like help determining whether a Trump account makes sense for your family—or how these tools can work together—feel free to reach out.
Tony Powers, AIF®, CFP®, CRPS® Shareholder
Tony Powers, President of KerberRose Wealth Management, has more than 20 years of experience in the financial services industry. He specializes in helping private and public sector employers set-up and manage their employee retirement plans. Tony provides Fiduciary Services and Support, Plan Design Consultation, Plan Benchmarking and Financial Wellness.