Trump Accounts:  What Are They, and Should I Be Using Them?

As part of the “One Big Beautiful Bill” Act (OBBBA) last July, Congress created new child investment accounts, nicknamed “Trump accounts.”  Trump accounts are a type of individual retirement account, owned by the child but managed by a parent or guardian until age 18.  We will discuss below how to use these accounts as well as whether you should open one for your child or whether alternative savings vehicles would be preferable.

How do I open and fund a Trump account?  To open a Trump account, parents or guardians of the minor account owner should log onto the IRS portal and submit Form 4547.  Once this form has been processed, parents and guardians will receive guidance from BNY/Robinhood (who are partnering to manage the accounts) on how to activate their children’s accounts.  U.S. citizens born in 2025 through 2028 will receive a $1,000 deposit from the federal government, called a Pilot Program Contribution.  Parents and parents’ employers can also contribute to the accounts.  The annual limit for total contributions is $5,000 (which is indexed to inflation, starting next year), and employers can contribute up to $2,500 toward that annual limit.  All contributions to Trump accounts will then be invested in a low-cost, diversified U.S. stock index fund. 

What happens to the Trump account when my child grows up?  Trump accounts can be funded up until the calendar year that your child turns 18, at which point the account balances are fully accessible to the child beneficiary.  Withdrawals prior to age 59 ½ are subject to a 10% early withdrawal penalty, similar to traditional IRAs, unless the withdrawal is used for higher education expenses, toward a first-time home purchase (up to $10k), or for another qualified exception.

Do I receive a tax deduction for Trump account contributions?  No, individual contributions to Trump accounts are not tax-deductible.  They are after-tax contributions that constitute the basis in the account, which can be withdrawn tax- and penalty-free in retirement.  Employer contributions will not count toward parents’ federal taxable income, which could be a nice benefit if your employer offers such contributions.  Employer contributions and tax-deferred growth in the account, however, will be subject to ordinary income tax upon withdrawal.  

Consider, for example, that parents fund a Trump account this year for their 10-year old child.  They contribute $2,500, and their employer contributes an additional $2,500, for a total starting account balance of $5,000.  They do not make any additional contributions in the coming years but just let the account grow undisturbed.  By the time the child turns 59 ½ years old, the account balance has grown to $250,000.  (Three cheers for stock market compounding!)  If the child took a withdrawal from the Trump account at that time, 99% of the withdrawal would be taxable at ordinary income tax rates, and 1% of the withdrawal (because $2,500 of parent contributions / $250,000 account value = 1%) would not be taxable given the beneficiary’s basis in the account. 

Should I open a Trump account for my child?  If your child is born between 2025 and 2028 and is eligible for the pilot program contribution of $1,000, you should definitely open a Trump account for him or her and claim your “free money” from the federal government. 

If your employer offers to contribute to a Trump account for your child, you should also open a Trump account for him or her.  Again, claim the “free money.”

If neither of these factors apply, the answer depends on your savings goals for your child.  However, for the vast majority of parents, Trump accounts will not be the best way to meet their financial goals for their children.

Most parents should focus primarily, if not entirely, on saving to 529 accounts for their children’s future.  Contributions to 529 accounts are made with after-tax dollars, like the Trump accounts, but they are eligible for state tax deductions in many states and they can grow and be withdrawn tax-free if used for eligible education expenses, including K-12 private school tuition, college expenses, vocational or apprenticeship programs, professional certifications, and student loan repayments.  Furthermore, up to $35,000 of 529 assets that are not used for education expenses can be rolled over into a Roth IRA for the beneficiary.  This amounts to much more favorable tax treatment than Trump accounts and more flexible options for the assets, provided you want to use them before your child turns age 59 ½.

If you want to save to help your child with longer term goals such as a first car or home purchase, then you would be better off opening a UTMA account (Uniform Transfer to Minors Act account), which is essentially a brokerage account for which a parent manages and invests assets on a child’s behalf until he or she reaches the age of majority (usually age 21).  Again, this type of account is funded with after-tax dollars, but the growth in the account will only be subject to capital gains tax rates, which are lower than ordinary income tax rates.

If you have already funded 529 accounts for any education needs as well as the $35k Roth conversion option, and you have UTMA accounts funded for intermediate financial goals for your child, and you would like to jump start saving toward your child’s retirement, then it would make sense to fund Trump accounts, which can grow tax-deferred until your child’s retirement.  You could even use the Trump account balance for modest Roth conversions in your child’s name after age 18 (just be sure to avoid triggering the “kiddie tax”).

If you do open and fund a Trump account, just be aware of the limitations—not only that the growth (and employer contributions) will be taxed at ordinary income tax rates, but that your child will have full access to the account balance at age 18, distributions will not be permitted until age 18, the account must be fully invested in a stock fund (no low-volatility options), etc. 

If you have questions about whether Trump accounts would be beneficial for your family, please call or email us any time.