Trump Accounts: Should You Open One?
There has been a lot of noise surrounding the new Trump Accounts, so my goal is to explain them as simply as possible while also outlining key trade‑offs and alternatives.
A quick heads up: this is a tax heavy article!
What Are Trump Accounts?
As part of the One Big Beautiful Bill Act of 2025, Trump announced the creation of Trump Accounts (aka TAs, aka 530A accounts). The stated goal is to give children a head start on saving for retirement.
All U.S. children under age 18 will be eligible to establish a Trump Account beginning July 4, 2026. Parents can open and manage the account on their child’s behalf.
Children born between January 1, 2025, and December 31, 2028, will receive a one-time $1,000 contribution from the U.S. Treasury to their Trump Account. In addition, other institutions, non-profit organizations, and some municipalities have pledged to provide supplemental contributions. Some of these contributions are age-dependent, and some are location dependent.
Once the minor turns 18, their Trump Account converts to a Traditional IRA.
How to Open a Trump Account
There are two ways to open a Trump Account. The first method is to file Form 4547 together with your annual tax return. Alternatively, you may open an account by completing the online version of Form 4547, which is accessible through the official website at https://form.trumpaccounts.gov.
Contributions
The contribution rules for Trump Accounts are complex, so bear with me.
Annual contributions from parents and relatives are capped at $5,000 per year, of which up to $2,500 can come from an employer. Certain entities such as federal, state, and local governments, as well as charitable organizations can contribute in addition to the $5,000 annual limit. As a result, the one-time $1,000 Treasury contribution does not count toward the $5,000 cap.
To make things even more interesting, contributions are excludable or nonexcludable from income depending on the source. Individual contributions are made after tax (nonexcludable). Employers, government, and charitable contributions are made pre-tax (excludable).
Growth Within the Account
Funds inside Trump Accounts can only be invested in low‑cost index funds, such as an S&P 500 Mutual Fund or ETF.
The child (and later, as the adult account holder) will defer taxes on gain. This differs from a taxable brokerage or Uniform Transfers of Minors Act (UTMA) account, where selling investments at a gain typically triggers capital gains taxes. However, don’t be misled, the gains will eventually be taxed on withdrawal.
Distributions
Distributions are generally not permitted before age 18, with limited exceptions.
Once the child turns 18, the Trump Account converts to a Traditional IRA.
As a result, funds generally cannot be accessed without penalty until age 59½. However, limited exceptions to the early withdrawal penalty do exist, including distributions used for qualified higher education expenses and a first time home purchase (up to $10,000).
Upon any withdrawal, the contributions made pre-tax income, and all earnings are taxed as ordinary income. After‑tax contributions, the basis, are withdrawn tax‑free. Do not confuse this with a Roth account, where both contributions and earnings are tax‑free upon qualified withdrawal.
Roth Conversions
Once the child turns 18, the now IRA could be converted to a Roth account. This can be a powerful strategy, as it allows taxes to be triggered while the child is presumably in their lowest marginal income tax bracket. After paying this one-time tax cost, the assets can continue to grow and ultimately be withdrawn tax free after age 59½.
However, an important caveat is that the conversion may be subject to the kiddie tax, which would levy taxes at the parents’ marginal rate rather than the child’s. If applicable, this tax treatment could significantly undermine the expected benefits and alter the overall effectiveness of the strategy.
While the kiddie tax rules are complex, the general concept is that a child under age 19 or a full time student between ages 19 and 23, who has sufficient unearned income (which can include income generated by a Roth conversion) may have a portion taxed at their parents’ rate.
As a result, factors such as the account balance, size of the conversion, the child’s earned income, and the parents’ marginal tax rate all play a critical role in determining whether a Roth conversion is advantageous.
In many cases, it may be more effective for the child to pursue conversions only after they are no longer considered a dependent.
Things to Consider
That was a lot of rules- so what are the main takeaways?
Potential Positives
First, if your child qualifies, they receive a free $1,000 from the U.S. Treasury, along with the potential for additional seed contributions from other institutions.
Secondly, employer contributions up to $2,500 a year can be excluded from an employee’s taxable income for Trump Accounts.
Lastly, Roth conversions can be a powerful long-term growth strategy if appropriate.
Potential Negatives
Individual contributions to Trump Accounts are made with after tax dollars and cannot be excluded from income. As a result, the benefits of making additional individual contributions are very limited for many families, particularly since future withdrawals of earnings will be taxed as ordinary income.
It is also important to think long‑term before contributing additional funds to a Trump Account.
Some individuals already face large required minimum distributions (RMD), which are taxed as ordinary income. Additional individual contributions to a Trump Account could further increase their future tax burden.
Additionally, when someone dies owning a Traditional IRA their beneficiaries must distribute the account within 10 years, with withdrawals taxed as ordinary income. These inheritances often occur during beneficiaries’ peak earning years and potentially pushing them into even higher marginal tax brackets.
Alternatives to Consider
If your goal is saving for education, a 529 plan can be a highly tax efficient option. Qualified education withdrawals from a 529 plan are tax free, and many states allow residents to deduct contributions from their state income tax.
Another option is contributing to a Uniform Transfers to Minor Act (UTMA) account, which is a taxable brokerage account set up for minors. These accounts offer greater flexibility for use. Long term, UTMA accounts avoid RMDs and the 10‑year distribution rule. Upon death, beneficiaries receive a step‑up in cost basis, allowing them to sell inherited assets with little or no tax impact. However, be mindful of the above mentioned “kiddie tax rules” that could trigger taxation at the parents’ rate.
Finally, if a minor has earned income, contributing to a custodial Roth IRA can be an excellent strategy. Paying taxes upfront while the child is in a low marginal tax bracket allows investments to grow tax‑free, with tax‑free withdrawals later in life.
Final Thoughts
Opening a Trump Account to capture the $1,000 U.S. Treasury seed contribution or any potential institutional or charitable funding makes all the sense in the world. However, given the lack of upfront tax benefits and future tax burden there is limited incentive for individuals to make additional contributions to their child’s or another relative’s Trump Account.
A potential exception is a future Roth conversion, which if timed when the child is in a low tax bracket and not subject to the kiddie tax could convert the account into a source of long term, tax free growth.
Contributing to a Trump Account should be evaluated within the context of a holistic financial planning approach, considering the family’s broader goals, cash‑flow priorities, tax situation, education funding needs, and long‑term retirement readiness.
As always, feel free to reach out to your RPJ advisor if you have questions on how to best utilize this new savings opportunity!
Sources:
https://www.congress.gov/crs-product/R48910
https://www.fidelity.com/learning-center/personal-finance/trump-accounts-vs-529-utma-ugma-roth-IRA
https://www.kitces.com/?s=trump+accounts&submit=&by-author=&by-category=&from-date=&to-date=
SSB Wealth Management, Inc., d/b/a Rembert Pendleton Jackson (“RPJ”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by RPJ, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.
This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. You should not treat these materials as advice in relation to legal, taxation, or investment matters.
Certain information contained herein was derived from third party sources as indicated. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. RPJ has not and will not independently verify this information. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to RPJ.