By Marc C. Shaffer
Are you hearing about “Trump Accounts” and wondering if this is the new go-to tool for saving for kids?
The short answer is that it’s a real, newly created account type with some meaningful features and some meaningful limits. Treasury and the IRS have said Trump Accounts are a new type of IRA for eligible children, created under Internal Revenue Code section 530A, with proposed regulations still on the way. Below is a practical breakdown of the good, the bad, and the ugly, including a comparison to three common alternatives: 529 plans, UTMA/UGMA custodial accounts, and a parent-owned brokerage account earmarked for a child.
What is a Trump Account?
Based on the IRS news release and Notice 2025-68, here are the headline features families are asking about:
- A Trump Account can be established for an eligible child (generally under age 18 at year-end, with an election made by a parent/guardian).
- Contributions generally can’t be made before July 4, 2026.
- A one-time $1,000 pilot program contribution may apply for eligible children who are U.S. citizens born January 1, 2025 through December 31, 2028, if an election is made.
- Total contributions from most sources are generally limited to $5,000 per year (indexed to inflation after 2027).
- Employers may contribute up to $2,500 per year through an employer program, counted inside that $5,000 limit, and treated as non-taxable to the employee in the manner described in the guidance.
- Investments are restricted to certain mutual funds or ETFs tied to the S&P 500 or another index of primarily American equities.
- Withdrawals generally are not allowed before January 1 of the year the child turns 18; after that, the account is generally treated like a traditional IRA.
That framework is important because it drives the tradeoffs.
The Good
1) A built-in “starter” contribution for some kids
The potential $1,000 pilot contribution is the feature that gets most of the attention. For families who would not otherwise open an investment account for a child, a seeded start can be meaningful over time, depending on market returns and fees.
2) Employer dollars could show up in a new way
If an employer adopts a Trump Account contribution program, that may create a simple on-ramp for payroll-style contributions, with a specific tax treatment described by Treasury/IRS guidance.
For working families, it’s often easier to save when money moves automatically.
3) Tax deferral mechanics after age 18 could be useful in some situations
Because the account is generally treated as a traditional IRA once the child reaches the allowed withdrawal window, the structure may fit certain long-term savings goals depending on future income, future tax brackets, and how distributions are used.
The Bad
1) Investment choice is narrow
The guidance requires the funds be invested in specific index-tracking mutual funds or ETFs focused on primarily American equities. That may be fine for many long-term savers, while still limiting diversification choices that some families prefer.
2) The annual contribution limit is modest
A $5,000 per year cap (with employer contributions inside that cap) can be helpful, and it can feel small for families trying to fund large goals like college, a first home, or a future business.
3) You are planning around rules that are still developing
Treasury and the IRS have announced upcoming regulations and requested comments. That means families may see operational details evolve, including administration, reporting, and trustee processes.
The Ugly
1) Liquidity is limited until age 18
For families who want flexibility for a wide range of kid-related expenses before adulthood, the restriction on distributions until the year the child turns 18 can be a real constraint.
2) “Traditional IRA” treatment can create tax complexity later
Once the account is treated like a traditional IRA, distribution rules and taxation may apply in ways families don’t expect if they were thinking of it as a simple kids’ savings account. That’s not inherently bad. It is a planning item that benefits from foresight.
3) The account’s best use case is narrower than the headlines
A lot of marketing language around new programs focuses on big life goals. In planning meetings, families usually want clarity on which goal this account is meant to fund and what happens if the child’s path changes. The more specific the intended purpose, the easier it is to judge whether a Trump Account fits.
Comparing Trump Accounts to other common “kids money” options
1) 529 plans
A 529 plan is often the first stop when the primary goal is education funding. The IRS describes the main advantage clearly: earnings are not subject to federal tax when used for qualified education expenses.
Where 529 plans often shine
- Education focus with tax advantages for qualified expenses.
- Account owner typically keeps control and can change beneficiaries (plan rules vary by state).
- Can fit broader family education planning, especially for households thinking about multiple children.
Tradeoffs
- Using funds for non-qualified purposes may trigger tax and penalty consequences on earnings (details vary by circumstance).
- Investment menus are plan-specific.
When it often comes up in our planning conversations
- Families who want a dedicated education bucket as part of a broader financial planning services checklist.
2) UTMA/UGMA custodial accounts
A UTMA/UGMA account is a custodial arrangement where an adult manages assets for a minor, and the child receives control at the age of majority under state law.
Firms and regulators regularly emphasize a key point: contributions are generally treated as an irrevocable gift to the child.
Where UTMA/UGMA can work well
- Broad flexibility on how money can be used for the child’s benefit (education is one possible use).
- No special “program” rules required to open one; widely available at brokerage firms.
Tradeoffs
- The child generally gains control at the applicable age, which can create a real-life risk if the child is not ready to manage a lump sum responsibly.
- Taxes: investment income may be subject to the “kiddie tax” rules depending on the child’s age and income levels.
When it often fits
- Gifts from grandparents, or funding goals that are not purely education-related, when the family is comfortable with the eventual transfer of control.
3) A parent-owned brokerage account earmarked for a child
Some families keep investments in a taxable brokerage account in the parent’s name, mentally earmarked for the kid.
Where it can work well
- The parent retains control over timing, amounts, and use.
- Simple administration. No custodial transfer rules.
Tradeoffs
- The account is still the parent’s for tax purposes, so dividends, interest, and realized gains typically land on the parent’s return.
- If the plan is to gift appreciated investments later, it’s wise to understand gift and tax basis considerations ahead of time.
When it often fits
- Families who value control and flexibility and plan to decide later whether the funds will go toward education, a home down payment, a wedding, or seed money for a business.
A simple way to choose among these options
Here are a few questions I’d suggest using as a decision filter:
What is the primary goal? Education, general purpose, or “launching adulthood” at 18+.
How important is flexibility before age 18? Trump Accounts look intentionally restrictive on early withdrawals.
How important is control past the age of majority? UTMA/UGMA is designed to hand control to the child.
What tax behavior do you expect? 529 plans are built around qualified education tax benefits; UTMA introduces kiddie tax considerations; parent brokerage shifts taxes to the parent.
For many families, the “best” answer is a mix: one bucket for education, one bucket for general support, and a clear written family plan for how and when money gets used.
Closing Thoughts
Trump Accounts are a significant policy development, and they may become a useful tool for some families, especially when the pilot contribution and employer programs apply. 529 plans and UTMA accounts remain familiar workhorses with well-understood pros and cons. The right structure often depends on your goals, your desire for flexibility, and how you want control to shift over time. This is often where families choose to work with a fiduciary financial advisor or fee-only financial planner to pressure-test the goal, the tax implications, and the account ownership details as part of a broader wealth management plan.
Sources Available Upon Request