Trump Accounts: The Basics

An Overview for Households

Trump Accounts are a new savings vehicle for children, created under the One Big Beautiful Bill Act. Below is a quick reference on how they work.

Background

• What they are: Tax-deferred savings accounts for minors, structured like a traditional IRA, created under the One Big Beautiful Bill Act (also called Section 530A accounts).
• Eligibility: Any U.S. citizen child under 18 with a valid Social Security number.
• Launch date: Contributions began July 4, 2026.
• Government seed money: Children born between January 1, 2025 and December 31, 2028 get a one-time $1,000 contribution from Treasury (opt-in via Form 4547 or trumpaccounts.gov).
• Contribution limit: $5,000 per year per child from family/individuals, inclusive of up to $2,500 in employer contributions. Family contributions must be made in cash.
• Investment restrictions: During the "growth period" (until the child turns 18), funds must sit in approved low-cost S&P 500 or total-market index funds/ETFs — no individual stocks, bonds, or leverage.
• Tax treatment: Individual contributions go in after-tax; employer, government, and charitable* contributions go in pre-tax. Growth is tax-deferred.
• Withdrawals: Functions like a traditional IRA once the child turns 18 — withdrawals before 59½ face ordinary income tax plus a 10% early withdrawal penalty, with an exemption for the after-tax contribution portion. The 10% penalty (not the income tax) is also waived for higher-education expenses and up to $10,000 (lifetime) toward a first-time home purchase.
• Gift tax treatment: IRS confirmed individual contributions qualify for the annual gift tax exclusion ($19,000 in 2026).

Account Setup

• How to open an account: File Form 4547 electronically (https://www.irs.gov/forms-pubs/about-form-4547) or via mail.
• How to ensure the $1000 goes to your child’s Trump account: The person who expects to claim the child as a “qualifying child” should be the one to file Form 4547. After filing, the government sends additional information explaining how to activate and finish setting up the account, and an authentication process is required to activate it.
• How to receive an account number: The activation step is completed through the Trump Account App and an account number is generated in the App.
• Custodian Information: Neither Schwab nor Fidelity have established processes yet. Robinhood and BNY Mellon have been designated by the government at the initial custodians for Trump accounts, with the option to roll over accounts to another custodian later.

*Charitable and government contributions to Trump Accounts must benefit an entire "qualified class" of children, such as all kids in a given state or income bracket, rather than a named individual, which means a household can't direct a DAF grant into a specific child's account the way the Dells funded $250 deposits for 25 million qualifying children nationwide.

Planning Considerations

Clarify Your Intentions: The right vehicle depends on the purpose of your family’s gift – is it meant to be for education funding, general flexibility, or long-term retirement savings?

529 Plans: Best for Education

Benefits: Growth and withdrawals are completely tax-free for qualified education expenses. Plus, you can roll up to $35,000 of unused funds into a Roth IRA (restrictions apply) for the child or redirect educational funds to the grandchild on the road.

Vs. Trump Account: Rolling a Trump Account into a Roth triggers immediate ordinary income tax on the pre-tax portion. A 529 offers a much smoother, tax-free transition.

UTMA/UGMA Custodial Accounts: Best for Capital Gains Advantage

The Benefit: "Kiddie Tax" rules allow the first $1,350 of a child's investment income to go untaxed each year, with the next $1,350 taxed at their ultra-low rate, and the excess income taxed at the parent's rate. Selling and buying back assets annually (gains harvesting) lets you build a tax-efficient nest egg by age 18.

Vs. Trump Account: Trump Accounts defer taxes now, but withdrawals are eventually taxed as ordinary income (up to 37%). UTMAs capitalize on favorable capital gains tax rates (up to 23.8%).

Parent-Owned Brokerage Accounts: Best for Control and Liquidity

The Benefit: You retain complete control of the funds indefinitely. Unlike UTMAs or Trump Accounts, there is no mandatory transfer of ownership when the child turns 18 or 21, and you can access the money at any time without penalty.

Vs. Trump Account: You give up tax deferral, meaning you pay taxes on dividends and gains annually. However, many families find this a small price to pay for complete financial control and liquidity.

Roth IRA: Best for Long-Term Wealth (If Working)

The Benefit: If your teen has earned income (from a summer job, babysitting, etc.), they can contribute up to what they earned. Decades of tax-free compounding make this the absolute strongest long-term wealth builder.

The Catch: Unlike other accounts, earned income is a strict requirement.

Our Wealth Planning View

If your child was born between 2025 and 2028, absolutely open a Trump Account to claim the $1,000 government seed contribution.

Beyond that, we advise caution before aiming for the $5,000 annual maximum. Seventeen years of contributions will build a large, highly rigid, pre-tax bucket that is locked until age 59½. While there is likely a tax advantage to converting a Roth IRA during your child's low-income years, the strategy requires significant long-term commitment, and then the funds are still locked up.

For most family wealth goals, a 529 plan, a custodial UTMA, or a parent-owned brokerage account should serve as your financial foundation, with the Trump Account playing a minor, supporting role.