So, What Exactly Is a Trump Account?
Transcript of Podcast Episode 379
Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode: So what exactly is a Trump Account?
These new investment accounts have generated a great deal of media attention in the past few months. How do they work, and is it worth setting one up?
A Trump Account is a new form of tax-advantaged savings for children that was introduced as part of the One Big Beautiful Bill Act passed in July 2025. The basic idea is to give children a head start with their savings at a very young age.
To be eligible, a child must be under age 18 on December 31 of the year the account is created. Up to $5,000 in annual contributions are allowed, indexed for inflation.
With Trump Accounts, of the $5,000 annual contribution limit, up to $2,500 per year can come from each parent’s employer and will not count toward parents’ taxable income, providing incentive for contributions to Trump Accounts. Please consult with your employer regarding this opportunity.
Children born between 2025 and 2028 also receive a special incentive, a $1,000 additional contribution from the federal government, referred to as “seed money.” The child must be a U.S. citizen with a Social Security number to qualify for this additional contribution.[1] There is no monetary requirement to receive the $1,000 government contribution, providing further incentive to create one. And, this $1,000 government contribution does not count toward the $5,000 annual limit, raising the maximum available deposit in year one to $6,000.
Investments in the account are generally made after-tax. In other words, you don’t receive a tax deduction for contributing to a Trump Account.
While the child is growing up, a Trump Account has similarities to a custodial or Uniform Gifts to Minors Act (UGMA) account. The account is owned by the child but managed by an adult custodian, presumably the parent or grandparent who set it up. The custodian is responsible for any investment decisions. Withdrawals are generally prohibited before the child reaches age 18.
Once the child reaches age 18, the account is treated in many ways like a traditional IRA account, including the 10 percent penalty tax for withdrawals before age 59½. Starting at age 18, the child—now legally an adult—can withdraw as much of the account as he or she wants. Earnings are tax-deferred while still in the account, but generally taxable when withdrawn.[2] This does not apply to the original contributions however, which were made with after-tax dollars.
There are restrictions on where the money can be invested. Before the account transitions to a traditional IRA at age 18, it can only be invested in low-cost stock mutual funds or Exchange Traded Funds (ETFs) that track an index of primarily American equities, such as the S&P 500.[3]
Note that you can enroll your child for a Trump Account now, but the accounts themselves won’t actually be made active until July 2026. You can sign up through the government portal, at Trumpaccounts.gov.
It’s still very early, but some experts have already pointed out a potential “hack” which could make Trump Accounts especially valuable.[4] It starts by assuming that the parent contributes the full $5,000 for 18 years. By the time the child retires in the distant future, with compound growth over many years, the value of the account could be quite significant.
The money is available for withdrawal when the child reaches age 18. But what if, as a young adult, the individual converts the account to a Roth IRA? The accumulated gains in the account would be taxable at the time of conversion, but once inside the Roth, withdrawals are generally tax-free once you reach age 59½.
A recent Wall Street Journal article goes through an example assuming an account receives the $1,000 government seed money, plus $5,000 per year until age 18.
The example assumes the money remains in the account. At age 24, assuming a 7 percent annual return, the account would be worth just over $278,000. At that point he or she converts to a Roth IRA and pays the tax through an outside source. If the money stays in the account and continues to grow, it will be worth just over $3 million by the time he or she reaches age 59½, again assuming the 7 percent return. Once he or she is past age 59½, any withdrawals are then completely tax-free.[5]
Age 24 was chosen for the example because at that age, the account holder is now past any “kiddie tax” considerations, but presumably also well before his/her peak earnings (and highest tax bracket) years. The sooner the money gets into the Roth, the better.[6] And as with a traditional IRA, it is possible to spread the conversion over several years if preferred.
The “kiddie tax” is an IRS rule that taxes a child’s unearned income (investments, interest, and dividends) at their parents’ higher marginal tax rates rather than the child’s lower rate. Please consult your tax advisor if you think this situation may apply to you.
Even though they’re just getting started, Trump Accounts have already become popular. By mid-March 2026, four million children had already been signed up for the accounts which, as mentioned, will activate in July of 2026. These kids are all off to a great start. On the surface, it appears the $1,000 of government seed money is something we don’t always see: a government program that works as it was intended to!
[1] Dickson, Joel. “What to know about the new Trump accounts for kids.” Vanguard.com. https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/what-to-know-about-new-trump-accounts-for-kids.html (accessed March 25, 2026).
[2] Id.
[3] Internal Revenue Service. “Treasury, IRS issue guidance on Trump Accounts established under the Working Families Tax Cuts; notice announces upcoming regulations.” IRS.gov. https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-trump-accounts-established-under-the-working-families-tax-cuts-notice-announces-upcoming-regulations# (accessed March 25, 2026).
[4] Ebeling, Ashlea. “The Hack That Turns Trump Accounts Into Multimillion-Dollar Tax-Free Nest Eggs.” The Wall Street Journal. https://www.wsj.com/personal-finance/the-hack-that-turns-trump-accounts-into-multimillion-dollar-tax-free-nest-eggs-53d303c3 (accessed March 25, 2026).
[5] Id.
[6] Id.
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