Trump Account: IRA for Kids With No Earned Income

We covered the new tax deductions in the 2025 Trump tax law in previous posts: seniors, car loan interest, tips, overtime, charity donations, and the SALT cap increase. The law also created a new type of tax-advantaged account called the Trump Account.

Trump Account, of course, is named after President Trump, as Roth accounts are named after late Senator William Roth from Delaware. It was originally called MAGA Account when it was introduced in the House bill before the name changed to Trump Account.

What Is a Trump Account?

A Trump account is essentially a non-deductible Traditional IRA for kids with no earned income.

Kids with taxable compensation (“earned income”) from a job or self-employment can already contribute to a Traditional or Roth IRA. They need an adult custodian until they’re 18 or 21. This type of account is called a custodial IRA (most parents choose the Roth version). Mainstream brokers such as Fidelity, Schwab, and Vanguard all offer custodial Roth IRAs.

A Trump account is similar to a custodial Roth IRA for a child, except that:

1. It’s a non-deductible Traditional IRA, not a Roth IRA. Contributions are not tax-deductible. Earnings are taxed as ordinary income upon withdrawal.
2. The child doesn’t need taxable compensation (“earned income”) from a job or self-employment.

Age Requirement

A Trump account can receive contributions for a child under age 18. The child must be a U.S. citizen. There’s no minimum age.

For the rest of this post, “age 18” means January 1 of the calendar year in which a child turns 18. A child is considered to have reached 18 on January 1 of the year of his or her 18th birthday.

There’s no income limit or phaseout for the person making the contributions. There’s no limit on how many kids someone can contribute for, as long as each kid meets the age requirement.

Contributions

Parents and legal guardians can open an account for kids who won’t be 18 yet by the end of the year. The contributions aren’t tax-deductible.

The initial account must be opened through the federal government via the official Trump Account mobile app (iOS, Android) or the website TrumpAccount.com. Treasury Department has appointed Robinhood to manage the accounts. The law allows rolling over the account to a private financial institution afterward, although no private financial institution has started supporting this account type yet.

The government will contribute a one-time $1,000 to kids born in the years 2025 through 2028 (inclusive). Billionaires Michael and Susan Dell will contribute a one-time $250 to kids born between 2016 and 2024 in select zip codes. If your kids were born during those years, check whether your zip code is included. My zip code isn’t.

Contribution Limit

The maximum contribution an eligible child can receive in a calendar year is $5,000. If parents, grandparents, and others contribute to accounts for the same child, the total combined contributions still can’t exceed $5,000 in that year. The $1,000 from the government for a newborn doesn’t count toward the $5,000. Neither does the $250 from Michael and Susan Dell. The $5,000 annual limit is indexed to inflation, starting in 2028.

An employer is allowed to contribute up to $2,500 a year to an employee’s or an employee’s dependent’s Trump Account if the employer establishes a program for their employees. The employer contribution won’t be taxed to the employee immediately, but the money will be taxable upon withdrawal, similar to a 401k match from an employer. The employer contribution counts toward the $5,000 overall contribution limit, similar to an employer contribution to an HSA. The $2,500 limit is per employee, not per child.

Some employers announced such programs. A business owned by one person or a married couple can’t set up a program for only the owner’s children.

Federal and state governments and charities can also contribute to Trump accounts for a broad class of children in a specific area. Their contributions don’t count toward the $5,000 annual limit. Treasury Secretary Scott Bessent said Trump Accounts could lay the groundwork for privatizing Social Security (and maybe other state child welfare programs?).

Contribution Deadline

The contribution deadline is December 31 of each year. Unlike IRAs and HSAs, you can’t contribute retroactively for the previous year before April 15.

Investments

Investments in a Trump account are limited to index funds and ETFs that track a U.S. equity index, such as the S&P 500, and charge an expense ratio of no more than 0.1% a year. The law specifically says the index must be “comprised of equity investments in primarily United States companies” — no bonds, no international stocks, no target date funds.

Currently, all contributions are invested in the State Street SPDR Portfolio S&P 500 ETF (SPYM).

Earnings aren’t taxed while the money stays in the Trump Account.

Distributions

No distributions are allowed until the child is 18. The money is locked up except for rollovers from one institution to another and withdrawals of excess contributions over the annual contribution limit. You can’t take money out before the child is 18, even if you’re willing to pay a penalty.

The account remains as a Trump account when the child is 18 and no longer eligible to receive contributions. Or it can roll over to a regular Traditional IRA in the child’s name. In that case, all existing rules on a regular Traditional IRA will apply at that point (requiring earned income to contribute, annual contribution limits, tax and penalty on early withdrawals, converting to Roth, etc.).

Because the contributions from parents and family members aren’t tax-deductible, they’re not taxed again on withdrawal. Only the earnings and contributions from the federal government, employers, states, and charities are taxed. This means you must track cumulative contributions over the years, similar to how non-deductible contributions to a Traditional IRA are tracked on a Form 8606.

Inheritance

In the rare and unfortunate event that the child dies before 18, the Trump Account dissolves. You can’t transfer the account to a Trump Account for another child. All built-up earnings and previously untaxed contributions from the government, employers, etc., are taxed to whoever inherits the account immediately. Then the money goes into a regular taxable account.

Should you open a Trump account for your kid when it becomes available? You can open an account to collect the one-time $1,000 from the government if you have a newborn in 2025 through 2028, or the one-time $250 from Michael and Susan Dell if your child is born between 2016 and 2024 and you live in the right zip code. Beyond that, it depends on how much money you have and what the money is for.

Trump Account vs Custodial Roth IRA

If the child has earned income from a job or self-employment, a custodial Roth IRA is better than a Trump Account. Earnings in a custodial Roth IRA are tax-free from the get-go.

You can do both a custodial Roth IRA and a Trump Account if you have more money to contribute. A contribution to the child’s Trump Account doesn’t eat into the contribution limit for a custodial Roth IRA based on the child’s earned income, and vice versa.

Trump Account vs 529 Plan

Many parents and grandparents save for a child’s college and K-12 education in a 529 plan. Distributions from a 529 account are tax-free if the money is used for qualified education expenses.

A 529 plan is better if the money is for education. It’s tax-free, whereas earnings built up in a Trump Account will be taxed as ordinary income upon withdrawal. Many states also offer tax incentives for contributing to a 529 plan.

Trump Account vs Custodial Account (UTMA/UGMA)

If you want to give money to your child or grandchild for something other than education expenses, you can already set up a custodial account, also known as a UTMA/UGMA account. Mainstream brokers all offer these accounts. Buying savings bonds in a child’s name is similar to using a UTMA/UGMA account.

A UTMA/UGMA account is taxable, but a child receives favorable tax treatment on a set amount of investment income each year. The first $1,350 in investment income in 2026 is tax-free. The next $1,350 is taxed at the child’s tax rate. Additional investment income above $2,700 received by a dependent in 2026 is taxed at the parent’s rate.

A UTMA/UGMA account is more flexible. There’s no limit to how much you can put into it. You can invest in more diversified investments, not just U.S. stocks. You can withdraw at any time, provided the money is used for the child’s benefit. If you invest tax efficiently, the account will have to be well above $100,000 to have more than $1,350 in dividends. There won’t be much tax to pay each year, and the child pays the lower tax rate on long-term capital gains (possibly at 0%) when they eventually sell.

A UTMA/UGMA account is still the way to go if you want flexibility.

Trump Account vs Account in an Adult’s Name

A UTMA/UGMA account turns over to the child’s control at a preset age (18, 21, sometimes 25). Some parents and grandparents prefer to keep more control until they’re sure the child is mature enough to handle the money responsibly. They keep an account in their name legally, but mentally earmark it for the child.

That’s another flexible approach. They won’t pay much tax when they invest tax-efficiently. The child gets a step-up in basis if they die before they gift the assets to the child.

Converting to Roth

Besides the one-time $1,000 for a newborn in 2025 through 2028, and possibly the one-time $250 from Michael and Suan Dell, the lure of a Trump Account is in converting the money to a Roth IRA when the child is no longer a dependent on the tax return.

The earnings built up over the years will be taxed as ordinary income in the year of the Roth conversion, but maybe the child is still in a low tax bracket at that time. The Roth IRA will provide a good base for the child’s retirement. I’ll write about this in detail in a separate post.

Legislative Risk

However, if the child is already 15 or 16, contributing $5,000 a year for only a few years won’t gain much in tax benefits over a regular UTMA/UGMA account, even when you convert it to a Roth IRA. If the child is still young, it’s far from certain whether the law will stay in its current form until the child is 18.

Many things can happen in 10, 15, or 18 years while the money is locked up. It’s an understatement to say that the Trump branding is more controversial than Roth IRAs. Many people may not want it associated with their kids. If the political regime changes, the Trump Account might be repealed. You may end up with an orphan account that has nowhere to go, or you may get a forced distribution. A child may never see the opportunity to convert it to a Roth IRA.

We’ve seen several initiatives that didn’t go as well as the government had hoped.

The Obama administration introduced a “myRA” account in 2014 for people without a workplace retirement plan. Only 0.05% of all people who could’ve signed up did so. The program was shut down after two years.

Coverdell Education Savings Account (“Coverdell ESA”) was launched as a savings vehicle for children’s education. It fell by the wayside after 529 plans became available, to the point that Fidelity and Vanguard stopped accepting new contributions to Coverdell ESAs many years ago. Vanguard recently asked all existing Coverdell account holders to close their accounts.

Priority

Parents with a newborn in 2025 through 2028 can open an account for their babies to receive the $1,000 from the federal government. If you live in the right zip codes and your kids are in the right age range, you can open an account to collect the $250 from Michael and Susan Dell.

For other kids, I would place the Trump Account below the existing tried-and-true account types in terms of attractiveness:

• Custodial Roth IRA if the child has earned income;
• 529 plan for education;
• Custodial (UTMA/UGMA) account or an account in an adult’s name for flexibility.

If you have more money than you know what to do with for a child after fully funding all the accounts above, maybe take a chance on a Trump Account and plan to have the child convert it to a Roth IRA after 18. Just be fully aware that the account may end before there’s any opportunity to convert it to a Roth IRA.

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You’ll find more deep dives on recent changes from the 2025 Trump tax law in the full OBBBA series.