One of the most talked-about provisions in the recently enacted tax legislation is the creation of Trump Accounts (officially known as Section 530A accounts). While the name has attracted plenty of attention, the real question for many families is much simpler:
Should I consider opening a Trump Account for my child or grandchild?
Like many new financial planning opportunities, the answer depends on your family’s goals.
Who is Eligible?
A Trump Account may be established for a U.S. citizen child under age 18 who has a valid Social Security number. A parent, guardian, or another authorized adult opens and manages the account until the child reaches adulthood.
Children born between January 1, 2025, and December 31, 2028 may also qualify for a one-time $1,000 contribution from the U.S. Treasury, provided the required election is made.
Who Can Contribute?
One of the attractive features of these accounts is that contributions may come from several different sources.
Eligible contributors include:
- Parents
- Grandparents
- Other family members
- Friends
- Employers
- Certain charitable organizations
- State, local, tribal, and federal government programs in qualifying situations
This flexibility allows several people to help build a child’s long-term financial future.
What are the Contribution Limits?
During childhood (known as the “growth period”), total annual contributions from parents, grandparents, family members, friends, and employer contributions are generally limited to $5,000 per child each year (indexed for inflation beginning after 2027). That is a combined annual limit—not $5,000 from each contributor.
The $1,000 federal seed contribution, when available, does not count toward the annual contribution limit. Certain qualified government and charitable contributions also may be excluded from the annual limit under the law.
Employer contributions receive special tax treatment. An employer may generally contribute up to $2,500 annually toward an employee’s child’s Trump Account without the contribution being taxable compensation to the employee, provided applicable requirements are met.
How is the Money Invested?
Unlike custodial investment accounts, investment choices are intentionally limited.
Current law generally requires investments to be made in a low-cost, broadly diversified U.S. stock index fund, helping keep expenses low while encouraging long-term investing.
Potential Benefits
There are several reasons these accounts deserve consideration.
- A newborn receiving the $1,000 government contribution could potentially benefit from decades of compounded investment growth.
- Family members can make annual gifts toward a child’s future.
- The accounts encourage investing at a very young age.
- Contributions are made with after-tax dollars, while investment earnings grow tax-deferred until withdrawn under the applicable rules.
For many families, beginning to invest early may prove to be the greatest advantage of all.
Potential Concerns
Like every financial planning tool, Trump Accounts are not perfect.
Some considerations include:
- Investment options are limited primarily to broad U.S. equity index funds.
- Money generally cannot be accessed during childhood except in very limited circumstances.
- Earnings are generally taxable when withdrawn under the account’s distribution rules rather than qualifying for tax-free treatment like a Roth IRA.
- If your primary objective is saving for college, a 529 Plan may still provide greater tax advantages because qualified education withdrawals are generally tax-free.
- Children with earned income may eventually benefit more from contributing to a Roth IRA, where qualified retirement withdrawals can be tax-free.
My Perspective
I actually like the concept.
Getting children interested in investing early—and giving compound interest decades to work—is something I’ve encouraged for years.
That said, I don’t believe these accounts should automatically replace existing planning strategies.
For some families, a Trump Account may be an excellent addition to an overall financial plan. For others, a 529 Plan, Roth IRA, or even a traditional custodial investment account may be the better choice.
Like most financial decisions, there isn’t a one-size-fits-all answer.
The best strategy depends on your family’s goals, tax situation, and what you’re ultimately trying to accomplish for the next generation.
Thank you for reading. If Trump Accounts sound like something worth exploring for your family, or if you have any questions about how they might fit into your overall financial plan, please don’t hesitate to reach out to our office. We’re happy to help you sort through the options.
Paul Levin, CFP®, ChFC®, RICP®, TPCP®
Managing Principal | Retirement Refined, LLC
Trump Accounts offer tax deferred growth on earnings. Family contributions are made with after tax dollars, and eligible employer contributions may be excluded from the employee’s taxable income. A one-time $1,000 federal contribution may be available for eligible children born between 2025 and 2028. Distributions are generally prohibited during the child’s growth period and once permitted, are taxable as ordinary income and may be subject to a 10% IRS early distribution penalty if taken before age 59½. Contribution limits and other restrictions apply, and some rules remain subject to future Treasury and IRS guidance. Consult a qualified tax advisor or financial professional before making decisions.
