Trump Accounts for Kids: How Do They Stack Up?

Trump accounts may offer a useful starting point for some families saving for their kids’ and grandkids’ education, especially when government or employer contributions are available. This webinar covers how the accounts are structured, the tradeoffs that come with them, and how they may fit alongside other savings vehicles already available to parents and grandparents.

Russell: Thank you all for joining me today. I’m Russell Rivera with Voice Wealth Management.

Today I really wanted to talk about these things called Trump accounts. I know people don’t necessarily love the name, but they were the talk of the town for about a year, and then they kind of went away. Nobody’s really been talking about them recently, what they are, or what they do.

I figured this was an opportunity to catch people up on where things are and help people figure out whether they’re the right thing for them, their kids, their grandkids, or whoever that might be. So, let’s get started.

First, the usual disclosures. For those of you who don’t know me, here’s my contact information. You’ll have it again on the last slide, but I wanted to make sure you could take a look at it.

What I really want to talk about is understanding what these accounts are. They’re a new type of account that has some things we’re probably fairly familiar with and some things we’re not familiar with, and they potentially provide some new opportunities.

At the same time, they need to be compared and contrasted with the other vehicles we can use to fund college or retirement for kids. They’re another possibility that’s out there.

There’s also a third, unique element because you have some private money coming in to fund some of these accounts. Those are extra benefits that some children are eligible for, but we all need to do more research on whether that affects us or the kids we’re caring for.

So, what is a Trump account?

Its formal name is the 538A. It’s named after the U.S. section of the One Big Beautiful Bill Act. These were instituted last year, and the idea was to create an automatic savings vehicle for kids and have the government fund it.

What’s particularly new is that the government is giving $1,000 to U.S. citizens with a Social Security number who are born between January 1, 2025, and December 31, 2028. Basically, that’s during President Trump’s term.

Eligibility to open an account, however, extends to anyone under the age of 18. Anyone who is not turning 18 this year, in 2026, is eligible to have an account opened in their name.

The other thing about a Trump account is that it’s mostly similar to a traditional IRA that we’re all familiar with. There are some elements we’ll recognize, and we’ll talk about those as we move forward.

How do you open one? There’s IRS Form 4547. You can access it by searching for Trump accounts on the IRS website or by going through TrumpAccount.gov. That will take you to the form and information about who can open an account and how.

Again, the child has to be a citizen and have a Social Security number. One difference between this and a traditional IRA is that almost anybody can contribute to one, including a parent, grandparent, or employer.

That’s particularly new. Employers can contribute to a child’s Trump account.

There is a limit across all sources. The limit is $5,000 per year. It will be adjusted for inflation, but let’s use $5,000 for our purposes today.

If you got $2,500 from an employer, which is the maximum, and $2,000 from Grandma and Grandpa, that would mean the parents could only contribute another $500. The money is essentially going into something that operates similarly to a traditional IRA.

That leads us to some of the limitations.

With major federal changes to the law like this, things are going to change. There may be revisions and adjustments around the edges.

Right now, the investment options are extremely limited. It’s essentially limited to index funds because the maximum fee on the underlying funds is 0.1% per year. That is one limitation of the Trump account as it’s currently structured.

The second is the lower contribution limit. With a traditional IRA, if a child earns $7,000, they could contribute all of that to an IRA in their own name and still could. But this Trump account has only a $5,000 contribution limit, no matter where the money comes from.

We’ll talk about that as we look at the tradeoffs and differences between other ways to save for kids, whether for college or another purpose.

There are also separate reporting rules because this is a different type of account. It has its own regulatory structure, and that’s why it can’t be combined with other types of IRAs.

IRAs have always worked this way. You can’t combine a Roth with a traditional IRA, for example, or generally combine a beneficiary IRA that you inherit with your own IRA, except under certain circumstances, such as when a spouse passes away.

The Trump account also can’t be combined with other accounts because the rules and tax treatment going forward are different.

There are limitations on withdrawals as well. It isn’t possible to withdraw from a Trump account until the child turns 18. Even then, unless it’s under certain circumstances, the money is really intended to stay in the account until age 59½.

Those circumstances include qualified education expenses or buying a home. It’s treated similarly to a traditional IRA, where you may have penalties for an early withdrawal unless you’re using the money for an eligible purpose.

The ways the money can be used by your child or grandchild later are limited. You can’t pull from it early, and withdrawals may be subject to penalties if they’re taken before age 59½. You also have the limited investment options we discussed.

This is the meat of what we’re going to talk about, but before we do that, I want to stop and ask for questions because I know I covered a lot going through those first few slides. If anybody has any questions, I’m happy to take them now.

Again, the key points are the $1,000 contribution if your child was born during the Trump administration, essentially from 2025 through 2028, and the restriction on taking money out before age 18.

There may also be private contributions from people like Michael Dell and Ray Dalio if you live in a certain ZIP code or meet certain age requirements. Those are subject to the limitations the donors put on them, so you should check the eligibility requirements.

Now let’s talk about some of the other options and compare them.

First is the Roth IRA.

One thing about the Roth IRA is that the child has to have earned income to contribute. So, this doesn’t work for a toddler, for example. But if you have a working teenager, you might consider putting money into a Roth IRA.

Why? Because in a Roth IRA, the earnings grow tax-free. When the money is taken out and the child is eligible to do so, they won’t pay tax on qualified withdrawals at that time.

With a Trump account, the tax treatment is different.

Money contributed to the Trump account is also not tax-deductible to the person making the contribution. If I had my own traditional IRA and put $5,000 into it, I could potentially report $5,000 less income to the IRS this year and pay tax later. If I contribute $5,000 to a child’s Trump account, I don’t get to deduct that amount from my income this year. That’s certainly a limitation.

Again, with the Roth IRA, the growth is tax-free. You can also pull contributions from a Roth at any time. That’s not something you can do with a Trump account.

Alternatively, the Trump account has been promoted as a way to help pay for college for kids. So, let’s compare that directly with a 529.

A 529 can have some additional tax benefits. If you pull money from a 529 for qualified college expenses, the earnings are tax-free.

When you make contributions to a 529, you may also have a state tax benefit depending on your income, what state you’re in, and which plan you contribute to.

Compared with a Trump account, you don’t get the same tax benefits or tax-free earnings. Those are things a 529 gives you that a Trump account does not.

At the same time, to receive those benefits from a 529, withdrawals are generally limited to qualified education expenses. A Trump account could remain invested and later be accessed at retirement age.

Another feature of a 529 is that if you don’t use the money for education expenses and the account has been open for at least 15 years, some of it may later be transferred to a Roth IRA in the child’s name.

Then, of course, there’s the more traditional UTMA or UGMA, which is essentially a gift-to-minor account.

Those accounts offer much more flexibility. You can give considerably more money than you could contribute to a Trump account. Regular taxable account rules apply. There may be taxes on dividends or capital gains, and the parents’ tax rules or the kiddie tax may apply.

Please talk to a tax advisor about that because every situation is different.

Compared with a Trump account, the primary distinction is the different tax treatment and how the account’s cost basis is handled.

On balance, the Trump account is appealing because of the free money and the low fees. But those low fees also limit what you can do with the account.

A 529 has some limited investment options, while Roth IRAs and UTMA or UGMA accounts generally have a broader range of investment choices.

There are plenty of options out there. That’s why a lot of people are looking at Trump accounts and trying to figure out where they fit and whether they’re appropriate for their situation.

I know this was short. It wasn’t intended to be super deep or super long, and I’m happy to answer questions as best I can.

Essentially, this is a new version of the commonly known traditional IRA structure, except it’s available for children of a certain age, including children who haven’t been born yet in some cases. It’s funded in part by the government and, in some cases, private contributions that are publicized on the website for these accounts.

Of course, there are limitations, different tax treatments, and restrictions on the investment options. Those features have drawn some criticism.

As with different types of investment vehicles, it’ll be appropriate for some people and not for others.

I know some people joined a little late, but I wanted to open it up for questions so I can help answer anything you might have.

Audience Member: This was so helpful, Russell. What I’m gathering from this, and you don’t need to say yes or no, is that if you have teenagers at the moment and you’re not in line to receive any of the free money because of the restrictions, you may be better off with the 529 and the UTMA, and then hoping your kid gets a job and starts contributing to a Roth.

Russell: Every purpose has something that fits it, right?

The primary selling point of this to the public was essentially the government seeding the account. Eligibility for that is very limited, obviously, primarily to very young children.

It’s also a very restricted account because they’re not going to get access to the money until age 59½ unless they meet one of the exceptions we discussed. There are probably other details as well, and that’s why I encourage people to look at the website.

Audience Member: I had another thought. With the tax treatment as ordinary income, unless you really want to lock up money to keep it away from the kid long term...

Russell: Again, without speaking to any individual situation, the way these were presented was as opportunities to be used as college funding vehicles for kids.

There are nuances. It’s certainly a lower-fee way to do it because the limited investment menu is probably cheaper than some of the investment options available through a 529 plan.

The longer you have to invest, the more time the account has. But you also have to consider the state tax benefits and tax-free growth associated with a 529.

I don’t want to say with 100% certainty how qualified education expenses from a Trump account will ultimately be taxed. But I can say that, based on the things I’ve read so far, these accounts can be taken into consideration in financial aid calculations. That’s not necessarily different from having money in another account held for the child.

These accounts share some of the positive elements of other types of accounts, and there are drawbacks too. It’s simply another version of tools that already exist.

Audience Member: Exactly. This is very helpful. Thank you.

Russell: Yeah. Any other questions?

The other thing I’ve been thinking about is that if you have a newborn or you’re planning on having a child in the next couple of years, this is obviously a mild incentive. Seeding an account like this probably isn’t a bad thing.

At this time, it’s also not an account that would be managed by a financial professional like me. That wouldn’t be able to happen until the child is 18. So that’s another drawback. It’s not as though you can shop around for how the account is going to be managed, although we already know the investment options are limited.

Still, it’s hard to turn down someone saying, “Here’s $1,000. Let’s put it in an index fund and see what happens.” You don’t have to fund that initial amount yourself. Someone else does.

Another feature that may be particularly attractive is that the account can be funded by an employer. That’s probably the biggest new thing.

If you have an employer who is willing to fund an account on behalf of your child, I would think that could be a reason to consider opening one because there isn’t another way to do that right now.

Any other questions from people here?

Then I get to see faces if some people want.

[Laughter]

Well, with that, I thank you for coming and watching.

I also apologize because I had to put this together fairly quickly. I had planned in rehearsal to say a little bit more than I did, which is why I’m opening it up for questions.

I’m still here if somebody has something they want to ask. I’ll keep the room open for a few minutes for questions.

Other than that, thank you for coming.

Russell D. Rivera, CFA, CFP®, is the Founder and President of Voice Wealth Management, an independent financial services firm serving professionals, entrepreneurs, and families in New York City and beyond. Focusing on helping clients make informed decisions about saving, investing, and financial planning, Russell is committed to providing a customized approach that reflects each client’s unique priorities and experiences.