FREE NEWSLETTER
INNOVATION IN THE world of retirement plans is decidedly slow moving. But as of July 4th, investors now have a new savings option known as a Trump account. In short, these are retirement accounts designed specifically for children.
Trump accounts share some similarities with traditional individual retirement accounts (IRAs), but there are also key differences. If you have children, grandchildren, nieces or nephews, this new option may be worth exploring.
Who is eligible for a Trump account? An account can be opened for any child who will be under 18 as of December 31 in the year that the account is opened.
How are Trump accounts different from traditional IRAs? The primary goal of these accounts is to allow children to begin to accumulate retirement funds much earlier than has been possible in the past. For that reason, and in contrast to traditional IRAs, Trump accounts don’t require a child to have any earned income. Contributions could begin as soon as a baby is born.
What is the process for opening an account? To get started, head to the new government website at trumpaccounts.gov. From there, you can download a mobile app to start the account opening process. I tried it myself, opening an account for one of my sons, and found the process quite easy. One nice feature is that the funds are invested automatically in low-cost index funds.
What are the contribution limits? Trump accounts have their own unique contribution caps, which are a little complicated. Individuals and employers can contribute up to a total of $5,000 per child per year, though the employer portion is limited to $2,500 of that $5,000. This limit will grow in future years.
In addition, the government and a group of philanthropists have established a pilot program and are making contributions to certain new Trump accounts. Children born between January 1, 2025 and December 31, 2028 are eligible to receive a $1,000 contribution from the government upon opening a new account. In addition to this $1,000 contribution from the government, a group of philanthropists, including Michael Dell, Ray Dalio and others, are contributing $250 to Trump accounts for children up to 10 years old who live in particular Zip codes. These additional contributions don’t count toward the $5,000 annual contribution limit.
Do Trump account contributions affect IRA contribution limits? If your child has earned income, he or she can contribute the maximum to a Trump account and still also contribute to a regular IRA or Roth IRA up to the annual IRA contribution limit. There’s no tradeoff.
How are withdrawals treated? Withdrawals from Trump accounts aren’t permitted during the initial “growth period,” which begins at birth and ends on December 31 of the year before the child turns 18.
After the growth period, withdrawals from Trump accounts will be treated in much the same way as traditional IRAs. Specifically, withdrawals prior to age 59½ are subject to a 10% tax penalty. Trump accounts do, however, allow for penalty-free withdrawals before 59½ under certain circumstances, including a first-time home purchase, higher education and a few other, less common situations.
The tax treatment of withdrawals differs by donor: Contributions by individuals are made on an after-tax basis, so those dollars come out tax-free. Investment gains on those contributions, however, are subject to ordinary income tax. Any dollars received from the government or other donors under the pilot program will also be subject to ordinary income tax.
Should you contribute to a Trump account? The answer, as with most financial questions, is that it depends. Here’s a framework you might consider:
Step 1: If your child was born between 2025 and 2028 and is thus eligible for the government contribution of $1,000, that is the easiest decision. I would head over to the new website today to get started.
Step 2: Should you make contributions beyond the government’s initial $1,000? I would pause at this point to assess where your college savings stand. Since education is such a significant expense and since 529 accounts have the benefit of growing tax-free, I would prioritize college savings over a Trump account contribution.
Step 3: The next account to consider is a custodial Roth IRA. If your children have any income, they can contribute to a Roth IRA. And since Roth balances grow tax-free too, I would also prioritize Roth contributions over Trump account contributions, where the growth will be taxable.
Step 4: After addressing potential 529 and Roth IRA contributions, ordinarily the next savings option to consider would be a custodial taxable account—often referred to as an UTMA. But it’s at this point that you might consider a Trump account.
How should you think about this decision? While there are tax differences between UTMA accounts and Trump accounts, and there are differences in contribution limits, neither of those, in my view, should be the primary consideration. Instead, the question I’d ask is how you’d like the funds to be used, and on that point, there’s a big difference between an UTMA and a Trump account. Depending on the state, children can generally access funds in an UTMA at either age 18 or 21. If you feel your child would benefit from having some funds to help get established in the early years after college, then an UTMA might be the better choice.
In contrast, Trump accounts are really designed to be retirement accounts, with only the handful of early withdrawal provisions referenced earlier. If you’d prefer to see your child’s savings grow for decades, then the Trump account might be the better choice.
If you aren’t sure how to decide between a contribution to an UTMA and a Trump account, you could always split the difference. One reason to do that is because Trump accounts present an interesting tax planning opportunity. After the growth period, if a child has a Trump account balance, that balance would be eligible for a Roth conversion, whereby it would transfer over to a Roth IRA to grow tax-free. Of course, Roth conversions are taxable, but if a child is in a low tax bracket in the early years after college, the tax might be modest. I see that as a compelling reason to consider making at least some contributions to a Trump account.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Adam, Great/Extremely helpful Rank-Ordering! Best article I’ve read on the topic of new Trump Accounts! Thanks!
I hope that the success of these accounts will pave the way for the consolidation of all the retirement vehicles a US taxpayer has to manage into a single account.
Contributions can be made as early as birth, either pre-tax or post-tax, and grow tax-free. Withdrawals can be made tax-free for education, healthcare, and charity at any time, and they’ll adhere to the existing IRA rules for all other withdrawals. Let’s have a generous and progressive contribution limit with the nice features of family, employer, and state pitching in!
Bye Bye 401K, 529, FSA, IRA, LPFSA, HSA… hello Trump Account!
What effects will Trump Accounts have on FAFSA calculations?
529s belong to the parent. This is important because the assets of a parent only reduces student aid by 5.64%, versus 20% from a Trump Account.
If the Trump Account is withdrawn at age 18, that taxable income will negatively impact future FAFSA calculations. Distributions from a 529 are ignored for that purpose.
Depending on a family’s income and assets, the loss of student aid could be greater than free money from the Trump Account.
Adam, by far the best description and analysis of these accounts I’ve read. Thank you.
Adam, others, the Trump Accounts are superior for creating wealth compared to most other options – and, you and others can ensure that outcome by pushing your employers to open Trump Accounts and add employer and pre-tax employee contributions (via cafeteria plans, where contributions garner significant tax preferences – pre-tax federal, state, FICA and FICA-Med).
Your employers need to reach out to Treasury to have them issue guidance (now, in the 3rd quarter, so action can be taken in 2026) that confirms the option of using IRC 125 cafeteria plan provisions (IRC 128), provisions that appear to be similar to those that apply to Health Savings Accounts (IRC 223), that were part of the One Big Beautiful Bill.
See: https://401kspecialistmag.com/trump-is-no-franklin-but/
If you don’t like the name “Trump Account”, nothing stops you from naming it a 530A Account, or, my suggestion – a “Ben Franklin Account”.
Jack
Yes, I’ll be using the 530A name. It’s bad enough my closest airport was renamed for Trump and Florida having to pay to change the signs.
Whether to take the first $1000 and any additional donated money to open a Trump account is a no brainer. Do it.
Whether to donate more? It looks like it’s only worth doing after exhausting other options.
Also, another app? Another account to keep track of? And trusting the gov’t to manage low cost index funds and not redenominate them as crypto? When will brokerage firms like Schwab, Fidelity, Vanguard have these accounts? (Or maybe they won’t because the accounts are too small to be profitable.)
Thanks for the timely reminder and the nice summary of the new Trump accounts. I emailed a few families about them when they were first announced, and plan to send this reminder along as well.