The passage of the One Big Beautiful Bill Act in 2025 included the creation of a new type of individual retirement account called Trump Accounts. These accounts are designed to be tax-advantaged, long-term savings vehicles for families to leverage on behalf of children born in the US between 2025 and 2028.
Seemingly even better than the tax benefits is the fact that the accounts include a $1,000 government deposit when they’re opened. Families can also make annual contributions of up to $5,000, which can be invested until the child turns 18.
This benefit caught my eye — I’m a financial planner with many clients who are parents, am a parent myself, and am always interested in better understanding potential financial benefits for my 4-year-old daughter.
I jumped at the opportunity to analyze the benefits and drawbacks of these accounts, both for myself and for my clients. Here’s what I found, and what I’ve shared with clients.
The biggest benefit: an extra $1,000 to your name
Let’s start with the $1,000 deposit made by the Federal government for children born between January 1, 2025, and December 31, 2028, who are US citizens with a Social Security number. This is the primary highlight of Trump Accounts.
If you have an eligible child, signing up to receive the deposit is worth considering. While an extra $1,000 on your balance sheet is great, that alone may not be enough to make Trump Accounts a superior savings option for your own cash versus alternative vehicles.
There are specific reasons that the combination of a 529 plan and a taxable investment account serves as a better option for your own contributions to your children’s financial future.
A 529 plan allows for more college savings
A Trump Account acts similarly to a traditional IRA, except that a child doesn’t need earned income to contribute. Withdrawals after age 18 are subject to ordinary income tax, with a 10% penalty if withdrawn before age 59½, unless used for qualified education expenses or a first-time home purchase (both limited in nature).
If your primary goal is to save for college, I usually recommend using a 529 plan for ongoing cash contributions over a Trump Account because:
- The 529 plan has higher contribution limits (based on the state’s aggregate limit)
- 529s offer more diversified investment options
- There are potential state tax deductions
- The SECURE Act 2.0, passed in 2022, made it possible to convert some 529s into Roth IRAs
A taxable investment account gives more flexibility to budding investors
Perhaps your goal is to help jump-start your child’s investment experience. In that case, a taxable investment account would offer much more flexibility over a Trump Account, thanks to the ability to deploy globally diversified portfolios with no contribution limits.
Trump Accounts are limited to investing within mutual funds or ETFs that track a US stock index (e.g., S&P 500). This means global investments are not an option, which, for us as professional investment managers, represents a critical lack of diversity that can hurt long-term returns.
A Trump Account is fine to have in the mix, but user experience presents a big question mark
None of this is to say that you should avoid a Trump Account if you have an eligible child who can receive the $1,000 government contribution. It’s money on the table, so you may want to take advantage if you qualify.
Here are more details on eligibility and how contributions will work now that the accounts are live, with initial $1,000 deposits starting in July:
- Contributions are made with after-tax dollars and are not tax-deductible. Employers may also contribute up to $2,500 per child annually.
- Once a child turns 18, the account acts like a traditional IRA. Kids can withdraw from the accounts, but the withdrawal will be subject to a 10% early withdrawal penalty, just like other tax-advantaged accounts, if the money is taken out and used for non-qualified purposes.
- Withdrawals before age 18 are not allowed.
Because these are a completely new type of account and will be administered by the Treasury at first (versus a large custodial institution like Fidelity or Schwab), there may be bugs to work out for early adopters.
Personally, I’m happy with our current savings strategy for our daughter
We have a 529 plan for her, which we contribute to regularly. We also have a taxable investment account earmarked for her. If she had been born in the eligible period between 2025 and 2028, we probably would not open a Trump Account for a few specific reasons:
- I don’t like the unknown and uncertainty around having the Treasury administer these accounts versus an established custodian, specifically in the business of platforming investment accounts like Fidelity, Schwab, or Vanguard.
- The investment options within the accounts are more limited and less diversified than the portfolios I prefer to construct for long-term growth.
- I would not like the uncertainty around what future administrations may or may not do with Trump Accounts. In such a politically polarized environment, I don’t think it’s unreasonable to expect a future administration to take steps to rescind or change the rules around Trump Accounts to make them less favorable savings vehicles.
We’re not dissuading our eligible clients from opting in to a Trump Account. It’s a simple way to get a savings jump-start, even if the only money in the account is the initial $1,000 contribution.
But we’re also looking at their broader financial plan and reminding them they have a choice about whether to use this account. For most, it will not serve as a critical piece of their overall financial strategy either way.
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