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, in the same way Roth accounts are named after Senator William Roth. 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, in essence, is a non-deductible Traditional IRA for kids without 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 to serve as the 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:
- It’s a non-deductible Traditional IRA, not a Roth IRA. Contributions are not tax-deductible. Earnings are taxed as ordinary income upon withdrawal.
- 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 18 by the end of the calendar year. You can’t contribute for older children. The child must be a U.S. citizen. There’s no minimum age.
There’s no income limit or phaseout for the parents. There’s no limit on the number of kids as long as each kid meets the age requirement.
Contributions
No one can contribute to a Trump account just yet. The law says contributions can’t be accepted until July 4, 2026, which is 12 months after the date of its enactment. This gives government agencies and their contractors time to set up the program. The July 4, 2026 date is a “no earlier than” date. The actual launch date may be later if the IT projects require more time.
When the program launches, parents and family members can open an account for kids who won’t be 18 yet by the end of the year.
The initial account must be opened through the federal government. It can be rolled over to a private financial institution afterward. The government will contribute a one-time $1,000 to kids born in the years 2025 through 2028 (inclusive).
The maximum contribution an eligible child can receive in a calendar year is $5,000. If parents and grandparents 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. 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 at the time of the contribution, 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 how it works in an employer contribution to an HSA.
It might be wishful thinking that an employer will establish such a program. It’s unclear whether a one-person business can set up a program for the owner’s children.
Federal and state governments and charities can also contribute to Trump accounts for a broad class of children in an 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?).
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.
As in other IRAs, earnings aren’t taxed while the money stays in the Trump Account.
Distributions
No distributions are allowed until January 1 of the calendar year in which the child reaches age 18. The money is locked up except for rollovers and withdrawal of excess contributions. You can’t take any money out even if you’re willing to pay a penalty.
The law doesn’t explicitly say what happens when the child is no longer eligible to receive contributions, but the general rule says a Trump Account shall be treated as a Traditional IRA. I take it to mean that it just turns into a regular Traditional IRA in the child’s name on January 1 of the calendar year in which the child turns 18. 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 the cumulative contributions over the years, similar to how non-deductible contributions to a Traditional IRA are tracked on a Form 8606.
Should you open a Trump account for your kid when it becomes available? It’s a no-brainer to collect the one-time $1,000 from the government if you have a newborn in 2025 through 2028. 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 save for their kids’ college education in a 529 plan. Distributions from a 529 account are tax-free if they’re used for qualified education expenses.
A 529 plan is better if the money is for college. 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 for something other than college expenses, you can already set up a custodial account, also known as a UTMA/UGMA account. Mainstream brokers all offer custodial accounts. Buying savings bonds in a child’s name is similar to using a custodial account.
A custodial 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 2025 is tax-free. The next $1,350 is taxed at the child’s tax rate. Investment income received by a dependent above $2,700 in 2025 is taxed at the parent’s rate.
A custodial account is more flexible. There’s no limit to how much you can put into a custodial account. You can invest in more diversified investments, not just U.S. stocks. You can withdraw from a custodial account at any time when the money is used for the benefit of the child. If you invest tax efficiently, 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 custodial account is still the way to go if you want flexibility.
Converting to Roth
Besides the one-time $1,000 for a newborn in 2025 through 2028, the lure of a Trump Account is in converting the money to a Roth IRA when the child is no longer a dependent. The earnings built up over the years will be taxed as ordinary income in the year of the 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.
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 custodial account, even when the money is converted into a Roth IRA at age 18. 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 18 years while the money is locked up. It’s an understatement to say that the Trump branding is more controversial than Roth’s. A good percentage of people in the country 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. Your 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”) launched as a savings vehicle for children’s education. It fell to 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.
The SECURE 2.0 Act created a “Saver’s Match” program to match the retirement contributions from low- to moderate-income Americans. It was supposed to begin in 2027, but now the entire program has been killed. Not a single person received any Saver’s Match.
Priority
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 for flexibility.
If you have more money than you know what to do with for a child after all the accounts above are fully funded, maybe take a chance on a Trump Account when it becomes available and plan to have the child convert it to a Roth IRA after turning 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.
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