Trump accounts explained
Here is everything you need to know about the new Trump Accounts.
What are they?
A new investment account for kids designed to help kids start investing early
Government is depositing $1,000 for newborns born between 2025-2028.
You can add up to $5,000/year *
Invested automatically into a diversified index portfolio
*The $1,000 government funding does NOT count towards the $5,000 annual limit
Who can have one?
Any child under the age of 18. Once the child turns 18 no more contributions.
Child must be US citizen with a Social Security Number
HOW DO YOU OPEN ONE?
Must file new election Form 4547 either by submitting on trumpaccounts.gov or with your tax return
Launches early July 2026
Note: You have to open the account for the child to get the $1,000 free money from the government!
WHO CAN CONTRIBUTE?
Family, friends and employers can all contribute. Only $5,000 a year max (outside of the $1,000 from the government) can go into the account a year
Any contributions could count towards the $19,000 annual gifting limit (awaiting guidance on this) so ensure you coordinate with your other gifting (529s, UTMA/UGMA etc.)
Employers can contribute up to $2,500 per year toward an employee's child, but this counts toward the $5,000 annual cap, not on top of it. One important nuance: the $2,500 is per employee, not per child. If you have two kids, it would split $1,250 per child, not $2,500 each. Employer contributions are tax-deductible, which sounds attractive for business owners HOWEVER contributions must satisfy Section 129 anti-discrimination rules and if you're the sole employee of your business, you automatically fail that test, so don't count on this perk.
What type of account is it - how is it taxed?
It’s an entirely different account type that has it’s own set of rules:
No tax deduction for contributions (except employer contributions which are deductible for the business)
Growth is tax deferred just like retirement accounts and 529s
Withdrawals = mostly taxed at ordinary income. See * below for the nerdy details.
If you withdrawal before 18 there is a penalty (some exceptions apply)
At 18 kids can use it for education, first home, starting a business (no early withdrawal penalty but still taxed at ordinary income rates)
Age 59.5 (same age as all retirement accounts) - no penalty for withdrawals. Still ordinary income taxes apply
At age 18 there could be an opportunity to convert to a Roth IRA for the child, which would be a significant planning opportunity but waiting on guidance for this
*The basis tracking piece: There will be a mix of after-tax contributions, pre-tax contributions and growth.
After-tax contributions = any contributions family & friends made where there was no tax deduction → not taxable when withdrawn
Employers and government contributions would be pre-tax + all investment growth → Taxable at ordinary income rates
Example: Parents contribute $20,000 over the years with no tax deduction. The account grows to $100,000. Only 80% of withdrawals are taxable because $20,000 are after-tax contributions ÷ $100,000 = 20% is the child's tax-free basis.
Record keeping matters here! Tracking every contribution will be essential otherwise the child (or their future advisor) won't know what portion they owe tax on or don’t.
A new government account without a complexity layer baked in - come on that’s dreaming!
What I like About Them
Kids don’t need earned income such as a W-2 or 1099 to contribute (you do for a Roth IRA)
Contributing to these accounts does not affect IRA contributions so if you are already maxing out your kids Roth IRA (awesome!) you can max out this account out too
You can use the funds for things beyond just education (starting a business or buying a home)
What I Don’t Like About Them
The complexities with tax basis I fear many will mess this up - I’m hoping they track basis within the accounts automatically.
Growth being taxed at ordinary income rates is a real drawback. If the Roth conversion at 18 becomes available and guidance confirms it, a partial conversion strategy over multiple years while the kids have low income could make this account very powerful. Until then, other child investment accounts may be more efficient.
MY POV with kid investment accounts in order of priority
529 - still my top pick for education. You can contribute more and withdrawals are tax-free for education (tax-free is a big difference)
Roth IRA - favor over Trump Account if kid has earned income because all growth is tax-free when you withdraw at 59.5. Plus you can always withdraw contributions anytime tax and penalty free so I like that optionality. Of course don’t want that as the power is just letting the money compound for years and years but I love options.
UGMA/UTMA - regular child investment account still might like this better over trump accounts as when kids go to sell for a home or to start a business only capital gain rates apply
Trump Accounts - if you have a kid between 2025-2028 get the free $1k. That is a no brainer! If you want to invest for your kids for other things (home, business, car, wedding) UGMA/UTMA or split between the Trump Account and UGMA/UTMA so you have options. The converting to Roth option on Trump accounts I’m waiting guidance on as that will make a big difference in my planning advice to my clients.
ONE MORE THING
I love that parents want to set their kids up for financial success and investing early for them makes a HUGE difference, but before you invest for your children, make sure your own financial foundation is solid first.
There are no loans for retirement. There are student loans, mortgages, and business loans for your kids. Put your oxygen mask on first then absolutely invest in theirs. You do not want to be asking your kids for money at 70 trust me!
If you'd like someone in your corner to help figure out which investment accounts make sense for your kids, set up a complimentary consultation.