Should You Open a Trump Account for Your Child’s Future? #265

The brand-new “Trump account” is a tax-deferred savings option for American children created by the One Big Beautiful Bill Act.

I break down who’s eligible for up to $1,000 in free government contributions, how these accounts work, and how they stack up against other popular savings vehicles like 529 plans, IRAs, custodial accounts, and regular brokerage accounts.

If you’re a parent or grandparent thinking about the best way to jumpstart your child’s financial future, you’ll want to tune in for my honest comparison of the Trump account's pros, cons, and quirks, plus tips on making the most of these new opportunities.

You will want to hear this episode if you are interested in...

• [00:00] Trump accounts for children, including eligibility and benefits, compared to other savings options.
• [04:52] Invest in low-cost US index funds for a child's account.
• [08:41] 529 accounts offer conservative investment options and potential benefits for education savings.
• [11:59] Consider a regular brokerage account instead of a Trump account, especially if it's not for college.

What Parents Need to Know About the New Trump Account

Saving for your child’s future can be complicated, and with the introduction of the new “Trump account” via the One Big Beautiful Bill Act, parents have another option to consider.

In a recent episode of the Retire with Ryan podcast, host Ryan Morrissey breaks down the ins and outs of this novel account. 

What is the Trump Account?

The Trump account, established by the One Big Beautiful Bill Act, is a new type of tax-deferred investment account specifically designed for American children.

It bears similarities to familiar accounts like IRAs and 529s in that all investments inside the Trump account grow tax-deferred, letting parents and children potentially maximize compounding returns. 

Eligible children, those born between January 1st, 2025, and December 31st, 2028, are entitled to a $1,000 government contribution just for opening the account, regardless of parental income. That's free money that, when invested early, could grow substantially over time.

How Does the Trump Account Work?

Parents (or guardians) can contribute up to $5,000 per child per year (indexed for inflation starting 2027) until the child turns 18, and employers can contribute up to $2,500 annually, also not counted as taxable income for the child.

The account must be opened at investment firms, which are required to limit investment options to low-cost index funds (with expense ratios under 0.10%), such as S&P 500, total stock market, or similar broad-market funds.

Once the child turns 18, they gain full access to all the assets in the account. Investments in the account benefit from tax-deferred growth, and withdrawals are taxed at favorable capital gains rates (15% or 20%) rather than ordinary income rates.

How Do Trump Accounts Compare to Other Savings Options?

• Traditional & Roth IRAs:

IRAs, including Roth IRAs, require earned income to contribute, posing a barrier for most children. While Roth IRAs trump Trump accounts for long-term tax benefits (withdrawals are tax-free), children generally can’t access this unless they have income from work. Also, traditional IRAs add tax deductions but are taxed as ordinary income on withdrawal, compared to the Trump account’s capital gains treatment.

• 529 College Savings Plans:

529s are tailored for college expenses, offering tax-free withdrawals for qualified education costs and sometimes state tax deductions. Plus, investment options can become more conservative as your child nears college age, something currently unavailable in Trump accounts, which are stock-only (at least for now). If used for non-educational purposes, 529s face ordinary income tax and penalties, whereas Trump accounts are taxed at capital gains rates for any withdrawal purpose.

• Brokerage & Custodial Accounts (UGMA/UTMA):

A plain taxable brokerage in the parents’ name offers flexibility, letting parents control access and investment options, paying minimal taxes on dividends each year. Custodial accounts shift tax liability to the child but must legally transfer to the child between ages 18 and 25, depending on state laws. Notably, assets in a child’s name weigh more heavily against them on financial aid forms than if held by the parent.

Who Should Consider Opening a Trump Account?

If your child will be born between 2025 and 2028, opening a Trump account is almost a no-brainer to snag the free $1,000. But for ongoing contributions, think about your goals:

1. Saving for college? Stick to a 529 plan for tax-free education withdrawals and more investment flexibility.
2. Want to help your child start life with a nest egg for any purpose? Trump accounts work, but remember your child gets full control at 18.
3. Prefer more flexibility or control over when and how your child accesses the funds? Explore regular or custodial brokerage accounts.

The Trump account is an interesting addition to the range of savings vehicles for children, especially thanks to the initial government contribution and low-cost investment options.

Still, its quirks, like the child’s access at 18 and limited investment choices, mean it won’t be a perfect fit for every family. Analyze your family’s needs, long-term goals, and how much control you wish to maintain before making your move.

Resources Mentioned

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Download my entire book for FREE 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

 

Subscribe to Retire With Ryan