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“TRUMP ACCOUNT” WAS created as part of the OBBBA signed on July 4, 2025. But is this account anything special? And how could we use it strategically to build wealth?
There’s been a lot of confusion about how it works, who qualifies, and whether they’re actually useful. I’ll walk through the rules, highlight key opportunities, and give my take on when (if ever) this account makes sense.
First and foremost, I want to point out that no contributions are allowed before 12 months after the date of the enactment of the OBBBA, meaning that you can’t really use or invest in such an account before July 5, 2026.
General Treatment
A Trump Account is treated similarly to a traditional IRA under Section 408(a) (which is not Roth), with certain modifications.
This account is created or organized for the exclusive benefit of an eligible individual who hasn’t reached age 18 before the end of the calendar year. When such an account is created, it must be designated as the “Trump account.”
So, who is an eligible individual?
I believe #3 likely means that you can file some statement with the IRS that establishes such an account (perhaps as part of your tax return filing, or otherwise).
Contributions
First, no deduction is allowed for any contributions made before the first day of the calendar year in which the beneficiary turns 18.
Contributions made before the calendar year in which the beneficiary turns 18 should not be more than $5,000, with inflation adjustments starting in 2027 (using the cost-of-living formula).
It is important to note that this is called a “regular” (non-exempt) contribution. That will become important later on.
There are other ways that contributions could be made. The following three options are called “exempt” contributions:
1. IRC Section 129 – Employer Contributions
Employers can contribute up to $2,500 per employee (or dependent) annually to a Trump Account, excluded from the employee’s gross income. $2,500 is increased with cost-of-living adjustment after 2027.
The program must meet requirements similar to dependent care assistance (Section 129(d)), such as non-discrimination and notification.
2. IRC Section 6434 – Pilot Program
Parents/guardians elect for an “eligible child” (U.S. citizen born Jan. 1, 2025, through Dec. 31, 2028, qualifying dependent under Section 152(c), no prior election was made) to receive $1,000 as a tax payment, refunded directly to the child’s Trump account. The election requires the child’s Social Security number. Payments are exempt from offsets/levies.
3. Qualified General Contributions
Contributions from governments or 501(c)(3) nonprofits are excluded from the beneficiary’s gross income.
These must target a “qualified class” of beneficiaries, such as all under 18s, those in specific states/geographic areas, or birth-year cohorts. Essentially, this means philanthropic funding (e.g., a charity or governments donating to minors in some geographic area).
So, why is there a difference between exempt vs. non-exempt?
Distributions
For purposes of distributions, we have to discuss the “investment in the contract,” or basis.
The investment in the contract does not include the exempt types of contributions.
This likely means we need to be aware of or track two things:
Note that trustees must report contributions (> $25 from non-Secretary sources), distributions, fair market value, and basis to the IRS and beneficiary until age 17.
Generally, no distributions are allowed before age 18 unless it’s an exception (rollover, qualified ABLE rollover, distribution of excess contributions.
If a beneficiary passes away, the account ceases to be a Trump Account. The fair market value (minus the basis, as described above) is includible in the acquirer’s or estate’s income.
Also, while the account beneficiary is under age 18, contributions to a Trump account do not count against the normal IRA contribution limits (like the $7,000 cap in 2025).
Investments
The account also must be invested in an “eligible investment” which is defined as a mutual fund or ETF that:
So, What Do We Do After Age 18?
That’s the question most people want to know, and one I’ve thought a lot about.
Distributions after 18 are taxed under IRC Section 72.
This means that distributions are typically treated as ordinary income to the extent they exceed the “investment in the contract” (basis).
Generally, a distribution (or a conversion to a Roth IRA) will likely be applied pro-rata between the basis and earnings. This is because some of the amounts are contributed after-tax (regular contributions) and some are pre-tax (like earnings)
Example: Let’s say you contributed $5,000 to a Trump account. Your child also received $1,000 of pilot program contribution. Your child is now 18. The amount grew to $22,000.
Basis = $5,000
Earnings = $17,000
If we distribute the entire amount before age 59½, a 10% early withdrawal penalty will apply. Of course, there are some exceptions like:
Let’s say we distribute the entire amount ($22,000) and pay for higher education. The $17,000 will be taxed at ordinary income rates.
If we distribute a portion of the account, say $10,000, the distribution will contain a pro-rata share of both, or around ~$2,272 of basis and $7,727 of earnings.
Interestingly, Section 408(d)(2) will be applied “separately with respect to Trump Accounts and other individual retirement plans.” This means the Trump account’s basis and value are not aggregated with any other traditional IRAs you might have for pro-rata calculations.
Conversion to Roth IRA
First, more guidance will be needed to clarify how Trump accounts will interact Roth IRAs, and whether a conversion is possible, but the big benefit I personally see with something like this is being likely able to convert to a Roth IRA and have a substantial amount without the need for earned income (assuming it’s allowed)
This way, a child could have 40+ years of growth all tax-free assuming such a conversion will be allowed.
The main question is how it would be taxed. We cannot move only the after-tax dollars from a Trump account to a Roth IRA and keep the rest in a Traditional IRA, since partial distributions must be allocated pro-rata.
If we convert the entire $22,000 to a Roth IRA, $17,000 will be taxed. If we convert $10,000, a pro-rata share will be taxed, similarly to the example above.
This means that if you have a dependent child, and convert some amounts, the kiddie tax will likely apply if you convert above certain thresholds (i.e., standard deduction for a dependent child).
Of course, the IRS has a lot of work to do on clarifying all these details, and this is just my interpretation based on the text and by no means should be construed as financial or tax advice.
Benefits and Prioritization
Is this worth it?
I believe the only usefulness of such an account is the Roth IRA play, and I expect wealthier taxpayers will likely take advantage of it if allowed. I would certainly at least get the $1,000 pilot credit if qualified.
For someone who can allocate $300 a month to build a child’s wealth, I think a 529 plan will likely come out ahead. Especially with the $35,000 Roth IRA rollover option in case a child doesn’t attend a higher education institution.
This is because the withdrawals are tax-free for qualified higher education expenses, and you can get a state tax deduction (+ opportunity cost there). Also, OBBBA extended the definition of many expenses for 529 plans, like paying for SAT/AP exams or postsecondary credentials.
One thing I think is important to keep in mind with Trump accounts is liquidity. If distributions from a Trump account are taxable, and the 10% penalty can be avoided in a limited set of circumstances, how likely is the usefulness of such an account for a 22-to-30 year old?
This means that if you wanted to support your child with a down payment for a car or a house (beyond the $10,000 amount exception to the 10% penalty), I believe a better savings vehicle might be more appropriate.
Trump Account vs. UTMA
Taking aside the 529 plan, as I believe it’s superior for most families, let’s look at UTMA vs Trump account. Both UTMA and Trump accounts are after-tax.
UTMA could have some dividends taxed, but due to the standard deduction, and likely qualified nature of them, ~$2,700 of such income can be excluded (standard deduction of $1,350, the next $1,350 is taxed at the child’s rate) per year.
So UTMA (taxable) vs Trump account (tax-deferred) will likely have similar tax drag in reality, unless your child has substantial assets in the UTMA.
Liquidity
Let’s say your child needs to buy a car at age 25, which they could use either UTMA vs Trump account for the down payment.
Let’s assume we invested $5,000 into each at their birth. By the time they are 25, let’s say they have $34,000.
For simplicity, assume no state taxes. With a UTMA account, parents could actually strategically do tax gain harvesting every single year to harvest long-term capital gains. They’ve increased the basis to ~$15,000.
Once withdrawals are allowed at 18, Trump accounts could also start getting converted into Roth. To stay below the kiddie tax, we can only harvest $1,350 (plus COL adjustment). The conversion could start a 5-year clock for withdrawing the taxable portion of the conversion.
At 25, we would only have very little to use with the Trump account that is accessible penalty-free.
Something to think about, though, is that UTMA money counts toward a child’s assets, whereas IRAs don’t for FAFSA.
A good approach, in my opinion, could be to have a small allocation to such an account solely for the purposes of Roth funding, while the majority of assets are prioritized in 529 and UTMA/brokerage in parents’ names if possible.
Summary
Is it really worth the hassle? Personally, I would at least get the $1,000 credit if your child qualifies, as it shouldn’t be too much effort to get it. It’s still unclear who will administer the accounts, and likely all major “players” will be involved to some extent.
For most families, I’d likely prioritize 529 plans and UTMA/brokerage accounts first, but using a small allocation to a Trump Account could give a child a potential head start on tax-free growth at 18. But like with any new provision, there are details the IRS will need to clarify, and the above is just my interpretation of the current law.
Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational. He shares insights on taxes and personal finance through his newsletter, helping thousands of readers to make smarter financial decisions. He has over 140,000 followers on X and 110,000 on Instagram.
Thanks for the great analysis and break down of these new accounts!
TBH it has confirmed my initial thoughts…Trump accounts are a solution in search of a problem.
One benefit I hadn’t thought of was the potential ability to convert to a Roth without earned income. Mathematically a benefit, but I’m not so sure about it being a lifestyle benefit. As a parent I’ve seen substantial personal growth from my kids having to deal with difficult members of the public and demanding bosses at their part-time jobs.
I started and contributed to UTMA accounts for my daughters. At first there was not a defined purpose for the accounts, but as they entered their teen years it became obvious. These accounts became the matching funds for their Roth IRA contributions. This served to incentivize them to contribute to their Roths and to reduce the UTMA balances prior to FAFSA reporting. Low annual earnings and reasonable withdrawals resulted in tax free growth for them. The remaining modest balances in these accounts will become their emergency funds as they head off into the world.
We also funded 529’s for each child. In Ohio we receive a state tax exemption up to $4k contributed per child per year. My wife and I were able to emphasize to them that each dollar in scholarships, grants etc. means a dollar+ in your Roth IRA (a penny saved is a penny compounded!)
If I had a child today (makes me dizzy just typing that) I would certainly accept the gracious $1k contribution from Uncle Sam, but I don’t see that the new accounts function as well as what we currently have at our disposal and certainly not better.
Thanks Bogdan. Great work.
I may be wrong, but I think the main difference between 529 and UGMA and Trump Accounts is the target population. Trump Accounts are targeted for the everyday American child – newborn to age 18. The vast majority of individuals in 529 or UGMA accounts are children of folks like me, guided by experts like you.
Here’s my take – the Trump Accounts are only a few steps away from what I was pitching for the last five or so years, what I call the Ben Franklin Child Roth IRA. And, as a corporate benefits professional, I see a great employee benefits oppotunity for employers to $1 for $1 match up to $2,500 per employee (or dependent) annually to a Trump Account (payroll deducted, after tax employee contributions) – deducting the cost on the corporate return, but excluding the contribution from the employee’s gross income. Even if the $2,500 is one time and not annual, seems like a great corporate engagement opportunity for every worker who has a child under age 18.
The timing is pretty good because of the forthcoming “Silver Tsunami” where Silents and Baby Boomers with accumulated wealth are in a position to make inter-vivos and testamentary gifts to children and grandchildren – to enable super long term investing, a la Ben Franklin. But, unlike Ben, to do long term investing “right”, avoid giving the government control over the accounts, decision-making.
See: https://401kspecialistmag.com/let-ben-franklin-create-middle-class-millionaires-eradicate-poverty-in-america/
Myself, I put $1,000 in a tax deferred annuity per the UGMA back in 1984 and 1987 coincident with the birth of each of my children. The investment allocation was 100% in US equities – hoping for an average annual return over the next 60 years of 12% (the S&P 500 return from 1946 to 1984 averaged about 11.3%). Despite the higher than normal fees due to the tax deferred annuity, both children are on track to becoming middle class millionaires, upon reaching age 60 (ignoring sequence of returns risk). Over time, I changed the funds from the UGMA tax deferred annuities into Roth IRAs – substituting what were my Roth 401k deferrals for the taxable monies. Unfortunately, SECURE 2019 interrupted my plans when Congress removed the stretch IRA. Bottom line, if it works, each child will be a tax free middle class millionaires, someday … all they had to do is put up with dear ol dad’s droning on about long term investing and Ben.
I encourage you to read the book, Ben Franklin’s Last Bet, by Michael Meyer. I met Professor Meyer earlier this year before presenting my long term investing story at the 2025 World at Work Total Rewards Conference.
My point is, every parent or grandparent can learn from Ben.
Perhaps once President Trump leaves office in 2029, we can rename the accounts for Ben Franklin, and change from Traditional to Roth IRA – applying the same rules as the (renamed) Kay Bailey Hutchinson Spousal IRA, which has been available for over 45 years.