Trump Accounts: Should You Open One for Your Child?

Trump Accounts: Should You Open One for Your Child?

Although we are still waiting for additional guidance from the Treasury Department and the Department of Education, we now know enough about Trump Accounts to determine where they fit in a family's financial plan. In my opinion, they are an excellent addition to the investment options available for children—but they aren't a replacement for every other savings account.

Designed for Long-Term Wealth

Unlike a 529 plan or a custodial investment account, a Trump Account is intended primarily as a long-term retirement savings vehicle.

Under the current law, withdrawals generally are not permitted before January 1 of the calendar year in which the child turns 18, except for a few limited circumstances. Because of this, a Trump Account is probably not the best place to save for a first car, college expenses, a wedding, or a home purchase before age 18.

Think of it as a hybrid between a Traditional IRA and a Roth IRA.

Family contributions are made with after-tax dollars, similar to a Roth IRA.
Government contributions, qualified employer contributions, and all investment earnings receive tax-deferred treatment similar to a Traditional IRA.
When money is eventually withdrawn, the family's after-tax contributions generally come back tax-free, while the government contributions, employer contributions, and investment earnings are generally taxable as ordinary income.

What Happens at Age 18?

Beginning January 1 of the year the child turns 18, the account becomes subject to rules similar to a Traditional IRA.

The beneficiary can begin taking distributions, but that does not mean the money becomes tax-free or penalty-free.

Unless an exception applies, withdrawals before age 59½ are generally subject to ordinary income tax on the taxable portion of the distribution plus the 10% early withdrawal penalty, just like a Traditional IRA.

One Account Per Child

Each child may have only one Trump Account, regardless of how many parents, grandparents, or other family members contribute. The account belongs to the child, but it is managed by an adult custodian until the child reaches adulthood. In most cases, it makes sense for the parent who claims the child as a dependent to serve as the custodian.

Contributions

The total contribution limit for 2026 is $5,000 per child.

Parents, grandparents, relatives, and friends may all contribute, but their combined contributions cannot exceed the annual limit.

A unique feature of the Trump Account is that an employer may contribute up to $2,500 per year to the Trump Account of an employee's dependent child (or an employee's own account if applicable). Those employer contributions count toward the child's overall $5,000 annual contribution limit.

For employers, these contributions are generally deductible as a business expense and are excluded from the employee's taxable income if the program meets the statutory requirements.

Should You Convert It to a Roth IRA at Age 18?

One planning strategy receiving a lot of attention is converting the Trump Account to a Roth IRA shortly after the beneficiary turns 18.

A Roth conversion allows future growth to occur tax-free, and many young adults are likely to be in one of the lowest tax brackets of their lives.

However, there is an important consideration.

The taxable portion of a Roth conversion—including government contributions, employer contributions, and investment earnings—is treated as taxable income in the year of the conversion.

For students attending college, that additional income may reduce eligibility for need-based financial aid, including Pell Grants, subsidized student loans, and certain need-based scholarships. Since FAFSA uses prior-prior year income, the timing of a Roth conversion could be very important.

The Department of Education has not yet issued specific guidance addressing Trump Accounts, so this is one area we will continue monitoring closely.

A Few Interesting Facts

Children born between January 1, 2025, and December 31, 2028, who meet the eligibility requirements, may receive a $1,000 federal seed contribution.
The law also authorizes additional government contributions for children living in certain lower-income communities. The qualifying ZIP codes have not yet been announced.
Only one Trump Account is permitted per child.
Grandparents, family members, and friends can all contribute to the same account.
Fidelity and several other financial institutions are expected to offer Trump Accounts.

Our Take

A Trump Account is not designed to replace a 529 plan or a custodial Roth IRA—it fills a different role.

If your primary goal is paying for college, a 529 plan will likely remain the better choice. If your child has earned income, a custodial Roth IRA remains one of the most powerful retirement planning tools available.

However, for families looking to build long-term wealth for the next generation, the Trump Account may become another valuable piece of the puzzle. Combined with decades of compound growth and the potential for government seed funding, it offers an exciting new opportunity to help children start adulthood on solid financial footing.

As additional guidance is released, we'll continue to keep you informed. If you'd like to discuss whether a Trump Account makes sense for your family or how to sign up, we'd be happy to help.

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