Introduction to Trump Accounts
Starting on our nation’s 250th birthday, July 4, 2026, the IRS is introducing a new type of investment account intended to jumpstart building wealth for children. These accounts are commonly referred to as “Trump Accounts,” but known legally as 530A IRAs. Just like any financial tool, there are pros and cons to these accounts, as well as optimal ways to use them. In this article, we will review the basics of these accounts, compare them to other account types designed to benefit children, and help you understand how they may (or may not) fit in your household’s portfolio.
What is a Trump account?
Trump Accounts are essentially minor IRAs that are custodied by a parent or legal guardian. Anyone can contribute to a child’s Trump Account, but those contributions fall into two buckets. The first bucket is “qualified” contributions, which are gifts from governments, charities, and non-profits; there is no limit to this type of contribution, if your child is lucky enough to receive them. The second bucket of contributions is “non-qualified” contributions, which come from family, friends, and employers; up to an aggregate total of $5,000 can be contributed in this bucket, including up to $2,500 from an employer.
Unlike in a traditional IRA, non-qualified contributions from friends and family do not receive an immediate tax deduction, though an employer making a contribution will receive a tax deduction for the business.
No withdrawals can be made until the beneficiary reaches age 18 unless the child becomes permanently disabled, in which case they are allowed to move the assets into an ABLE account. Once the beneficiary turns 18, the account turns into a traditional IRA and follows the same rules as a traditional IRA; this means that withdrawals prior to age 59 ½ that do not meet specific exceptions will receive an additional 10% penalty. Taxation is also the same as a traditional IRA, meaning all gains are tax-deferred until withdrawal and the full distribution is taxed at normal income tax rates. This may lead to “double taxation” because non-qualified contributions are made using money that was likely taxed as income when received, then withdrawals are taxed again at ordinary income rates for the beneficiary.
Investments are limited to U.S. based low-cost index funds, which may result in less diversification and creativity when building an investment portfolio.
How does this compare to other types of accounts available to children?
The appropriacy of a Trump Account is largely dependent on your household’s financial situation and your goals for the account. There are too many nuances to dive into every possible situation, but from a birds-eye view, let’s compare how different child account types match up to the Trump account.
If your goal is to save for a child’s education, 529 plans are going to be king. They are triple tax advantaged, meaning they provide a state-level tax deduction on contributions in some states (like New York!), grow tax deferred, and are withdrawn tax-free for qualified educational expenses. There are penalties if assets are not used for education, but when it comes to the specific use of covering education expenses, these will be more advantageous than Trump accounts for two main reasons: 1) A Trump account in a student’s name receives less favorable treatment than parental assets in student aid calculations and 2) distributions from a Trump Account for education are penalty-free, but are still taxed as income. Trump accounts are simply not designed for education expenses.
Recent legislation now allows conversions from 529 accounts into a Roth IRA for the same beneficiary (up to $35,000 lifetime and restricted to the maximum annual contribution limits each year). With this legislation, 529s become more flexible and can work as somewhat of a hybrid, prioritizing education savings first with a fallback option to move assets into tax-free retirement savings. Even if your goal is education, a 529 can provide more advantageous retirement savings up to the $35,000 lifetime maximum.
If you are specifically looking to save for your child’s retirement, another option may be a minor Roth IRA. A minor Roth IRA will beat out a Trump account in tax efficiency. Both accounts lack an immediate tax deduction but grow tax deferred. The key difference is that Roth IRA withdrawals are tax-free, which puts the minor Roth in a better position for distribution in retirement than a Trump Account. The big caveat is that contributions can only be made to a minor Roth IRA if the child can show proof of earned income; most children do not have earned income and therefore cannot contribute. A Trump account is not ideal in comparison, but if your child is excluded from minor Roth IRAs, you can still contribute to a Trump Account and do Roth conversions after they reach age 18 when they likely have very low income so the cost of conversion would potentially be slight.
Finally, lets compare Trump accounts to Uniform Transfers to Minors Act (UTMA) accounts. These accounts are non-qualified, meaning that there is no annual limit to contributions but the earnings and realized capital gains are taxed on an annual basis. While UTMAs are taxable accounts, they do receive a “kiddie tax” advantage, meaning the first taxable $1,350 is offset by the child’s standard deduction. The next $1,350 is then taxed at the child’s marginal tax rate (often advantageous to parent’s tax rate). After the first $2,700, all gains, dividends and interest income are taxable at the parent’s marginal tax rate. The taxation is difficult to compare apples-to-apples with a qualified account because it depends on tax rates and how often gains are being realized. When looking outside of taxation, the liquidity in an UTMA is much greater and, in many cases, may outweigh the possibility of a small tax benefit in a Trump account. The decision to utilize one or another in this case becomes very subjective and the “best” solution is on a case-by-case basis.
So what should we do?
If your child was born between 1/1/25 and 12/31/2028, they will qualify for $1,000 initial seed money from the government. If they meet this criteria or will be the recipient of a gift from third-party qualified donor, you should take advantage of a Trump Account. Beyond free money, which is outside of your control, there is generally less efficiency in Trump accounts regarding maximizing a child’s wealth building. Double taxation on non-qualified contributions and lack of liquidity are the biggest drawbacks of these account types.
All in all, it is nice to have options. We would recommend caution about prioritizing funding Trump Accounts for your child over other solutions due to lack of flexibility, but Trump accounts can be a good source of supplemental savings in addition to other account types when stretched to their limits. If you are looking for more clarity on your family’s situation and how to best proceed, please reach out to our office and speak to your trusted advisor.