More than seven million Trump accounts, a new tax-deferred investment account for children, have been opened so far, and parents of newborns may soon be able sign up before they leave the hospital.
But with plenty of tax-advantaged options for children already available, many parents (myself included) have been wondering where these accounts — also known as 530As — fit within the existing framework of kid-friendly investment alternatives, particularly when stacked against 529 college savings accounts.
The Trump accounts stand out because they essentially offer a direct pipeline to free money. Many families with children under 18, particularly younger ones, should strongly consider opening a 530A account if only to serve as a collection basket, even if they need to (and probably should) prioritize other savings goals first.
The federal government is providing a seed deposit of $1,000 for children born in 2025 through 2028, at a potential cost of roughly $15 billion through 2034. The tech billionaire Michael Dell and his wife, Susan, will contribute an additional $250 to each of the first 25 million children who enroll. To be eligible for a Dell gift, the children need to have been born in 2016 through 2024 and live in a ZIP code where the median household income is below $150,000. Many other philanthropists have pledged to make deposits of their own — and more are likely coming.
“That’s why it’s a no-regrets move,” said Joel Dickson, who oversees investment strategies for Vanguard’s advised accounts. “If there is going to be money in the system for your children’s financial future that you can’t get in any other way than through a Trump account, then, by golly, have a Trump account.”
Think of the account as a starter individual retirement account: Parents, guardians and others can open one for children under 18 with a Social Security number, contributing up to $5,000 annually. But other relatives, employers, philanthropists, governments and charitable groups can also make deposits, which grow tax-deferred in an ultralow-cost stock index fund.
Most eligible children don’t yet have a Trump account, but 1.7 million newborns have captured the $1,000 in seed money, a significant gift that should not be left on the table. The logic here is similar to grabbing an employer match on 401(k) savings, in that it provides an instant return. But in this case, families don’t need to put up any of their own money — in fact, there are often better and more flexible places to save for your children than the gilded piggy bank on the program’s app.
College or Retirement?
Trump accounts have many restrictions — the money is largely locked up for 18 years — which is why families that want the option of tapping the money in an emergency are probably better off with another type of savings or investment account.
If higher education or trade school is a goal, then 529 college savings accounts — named for a section of the tax code in the 530A neighborhood — will be a better fit, particularly as they’ve become more flexible in recent years.
Money is contributed to 529 accounts after taxes (some states offer tax deductions), it grows tax deferred and is withdrawn tax free when used for eligible expenses. And that list has expanded in recent years. Besides higher education and trade school, the money can be used for K-to-12 private school, apprenticeships and student loan payments. The real sweetener: Up to $35,000 can generally be rolled over into a Roth I.R.A. over time, a nice bonus.
Contrast that with Trump accounts, which are designed for retirement. The money is locked up during its growth period, but once the child turns 18, the account transitions into a traditional I.R.A. that he or she controls (another consideration for parents). At that point, the teenager can let the money continue to grow for retirement or withdraw it penalty-free for specific purposes, like buying a home or attending college.
The tax treatment upon withdrawal is also complicated: Contributions made by individuals with after-tax money is withdrawn tax-free, but deposits made by the government, employers and other organizations are subject to ordinary income taxes.
Because Trump accounts are viewed as retirement assets, having one won’t hurt eligibility for federal financial aid, according to an official from the Education Department. But withdrawals from the accounts could affect those calculations, which means students will need to be strategic about the timing. Money taken out will count as income on the Free Application for Federal Student Aid (FAFSA) for the academic year two years after it is withdrawn. (Taking money out from your junior year onward should not affect federal aid, financial aid experts said.)
How much can be contributed?
Although individuals can contribute up to $5,000 a year, employers can contribute up to $2,500, which counts toward that annual cap. But eligible government and philanthropic contributions can be made without limit and do not apply to the annual ceiling.
Trumpaccount.com (singular) and Trumpaccounts.gov (plural), which lead to the mobile app, have more detailed information on how the program works. Be careful about where you land because fraudsters are surely waiting for you to make a mistake.
Several kinks still need to be worked out. Though some employers are interested in offering contributions and permitting employee pretax contributions, many appear reluctant to move ahead, according to recent research from Mercer, a benefits consulting firm, at least in part because many practical operational questions have not yet been addressed.
But several large employers, including Goldman Sachs, JPMorgan Chase and Morgan Stanley have already pledged to match the federal seed contribution, and some companies have gone even further.
How much growth could the accounts see?
Children’s accounts as a policy idea have broad bipartisan support, but the structure of the 530A accounts does not solve for any of the deep-rooted issues that make it impossible for strapped families to make contributions of their own.
The Trump administration has promoted the hefty balances that can result with a fully funded account, but most American children will not get anywhere close — in fact, some policy experts argue that the accounts could widen the wealth inequality gap further because they present another tax shelter for more affluent families to turbocharge their children’s futures.
For example, if a child’s account is fully funded with $5,000 annually from birth, he or she might accumulate about $160,000 at 18, according to Vanguard, before taxes. (This assumes a conservative annual return of 6 percent, which does not account for inflation, and investment costs of 0.10 percent annually.)
But an account that received $1,000 annually from a child’s birth — perhaps through a combination of savings and contributions of roughly $83 monthly — could accumulate $32,000 after 18 years, Vanguard found. A $500 annual deposit would yield half of that, or $16,000.
“If you have all of your other basics covered, or at least largely covered, and you have the room to be thinking about setting your children up for that kind of thing, then sure — that could be very useful, especially if you have an employer that would contribute as well,” said Matt Becker a financial planner with a focus on younger families at Fruitful, a firm that helps people automate their finances. Mr. Becker favors the flexibility offered by brokerage accounts and Roth I.R.A.s.
How can parents sign up?
The administration is steering people to sign up through a mobile app, but there is a website as well. The process is relatively easy, though I’ve heard from readers who have encountered some bumps.
If you use the app, you’ll initially enter some basic information before being directed to take a detour to the Internal Revenue Service website to fill out Form 4547 (a nod to Mr. Trump’s status as the 45th and 47th president), but you will need an ID.me account, which the I.R.S. uses to verify identities.
I already had one, so the sign-up process took about 20 minutes, including chasing down passwords and Social Security numbers. Within 12 hours, I received a note to activate my account, at which point there were 115 pages of documents and disclosure to review, as well as a privacy statement about eight swipes long on the app. At this point, it became apparent that Robinhood was the brokerage firm hosting the accounts, an arguably controversial choice for children and young adults, given its reputation for gamifying trading — and its incorporation of gambling with prediction markets. (The Trump account, however, is not connected to the consumer site.)
I was able to quickly link my bank account to initiate two small deposits — illustrated with golden coins being deposited into a gilded piggy bank, which an email said could take five days to transfer, and another day to invest.
“Make sure you trust Trump accounts and Plaid,” it said, referring to the company that provides the plumbing connecting my bank information to the program.
Though the investment choices are limited to one stock fund from State Street — the program permits only low-cost index funds that largely track American companies — there will eventually be an opportunity to roll over the accounts to other vetted providers; the Treasury Department will have guidance in coming months, according to a spokeswoman.
Sometime soon this year, new parents will be able to sign up for the accounts, along with their $1,000 deposit, before they leave the hospital, using the same form that is used to create a Social Security number, according to the Social Security Administration.
My younger child was eligible for Dell money, but it was unclear if and when that would land — parents do not need to take any action to receive the contribution, though the Treasury Department said it would notify families through the app or by email when it was about to arrive.
For now, my family will continue to prioritize our monthly automated contributions into college savings accounts. But I’ll use the 530A accounts as a conversation starter with my children — it’s a great way to talk about the benefits of long-term savings, the magic of compounding and equity.
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