There is a new kind of investment account in town, created by the One Big Beautiful Bill Act of 2025, that is intended to provide children with a head start on saving for retirement. Perhaps unsurprisingly, these accounts are officially named “Trump accounts” (“TAs”), and as of July 4, 2026, families can open them for their children who are under 18. We have heard questions from clients recently about these accounts and wanted to provide our perspective on them.
One of the most-publicized elements of these new accounts is that the federal government will make a one-time $1,000 deposit to a TA for every eligible child born from 2025-2028. Concurrently, Michael and Susan Dell have pledged funds to provide a smaller contribution for children born between 2015-2024 who live in qualifying zip codes[1].
Because TAs are available exclusively for minors, it’s worth considering them in the context of other commonly used investment accounts for kids, including 529 plans, custodial accounts, and trusts. In most cases, it seems that pre-existing account options better accomplish savings goals for minors.
How Do TAs Work?
A TA is an Individual Retirement Account (IRA) for minors, available to any child under 18 who has a Social Security number. Individuals such as a parent or grandparent can contribute after-tax dollars, meaning there is no tax deduction for these contributions, unlike a regular IRA contribution. State and local governments, nonprofits, and employers can also contribute to TAs, and these contributions are generally pre-tax. The maximum annual contribution from all sources combined is $5,000 per child. Currently, the only allowable investment is an S&P 500 index fund, and all investment growth is tax-deferred and taxed as ordinary income when withdrawn. When the child turns 18, the account converts into a traditional IRA, and control transfers fully to the child. At this point, the account follows standard IRA rules.
Regular withdrawals aren’t allowed from TAs. Generally, funds can only be withdrawn after the account becomes an IRA, and standard IRA distribution rules apply. This means that – outside of a few specific exemptions – most withdrawals before age 59 1/2 incur a 10% federal penalty on top of ordinary income taxes. This is a major drawback of the account, particularly since individual contributions are not tax deductible. The rules around TAs are complex, and this is not an exhaustive list of all of them. In addition, this savings method is so new that official rules are still being finalized.
What Are the Alternatives?
TAs join a group of other accounts that are well established savings vehicles for kids. In order to understand how TAs fit into the savings landscape for families, a quick overview of other options may be helpful.
529 plans are great for education savings. The account owner (not the beneficiary) has control of the account, and investment growth is tax-free when used for qualified expenses. What counts as “qualified” is also broader than people may assume. For example, 529 money can be used to buy a new computer, or to pay for a child’s off-campus rent and utilities. For nonqualified withdrawals, earnings are penalized and taxed as ordinary income, similar to early IRA distributions.
Custodial accounts (UTMAs/UGMAs) hold money that belongs to the child outright, whether in a retirement account or a regular brokerage account. Because minors cannot legally manage their own accounts, an adult serves as custodian until the child reaches a specific age, typically 18, 21, or 25, depending on the state of residence and account terms. A custodial Roth IRA might be funded from earnings if the child is working, while a custodial brokerage account could be funded with birthday or graduation gifts. No matter how they’re funded, these accounts can be a good way to start teaching kids how to manage money. They are, however, subject to “kiddie tax” rules, so a child’s unearned income may get taxed at the parents’ tax rate.
Trusts are a good alternative when more flexibility is needed around when – or whether – a child takes control of the assets. They can be used in a variety of circumstances, for example, to preserve benefits for a child with special needs, or to provide structure and support for managing a large sum of money. A trustee manages the trust on behalf of the beneficiary, following rules that were established in advance. The trustor, who originally creates the trust, has wide latitude to write their own rules governing how funds are distributed. The tradeoff for this flexibility is that trusts are generally taxed at a very high tax rate.
Bringing It All Together
Given all these considerations, how do TAs fit into the landscape of account options for kids? Because TAs are retirement accounts, they should be evaluated based on their tax characteristics. For individual contributions, money is taxed before it’s contributed and also when it is withdrawn. This combination is unusual for retirement accounts, which typically only tax money once. Because of this, individual contributions to a TA are not necessarily the best way to save for kids.
Employer or governmental contributions are a different story. If an organization will contribute to a TA on your behalf, there is no reason to turn down free money. This includes kids who are eligible for the initial $1,000 government funding. Further, these contributions are not taxable, which makes the tax on withdrawals reasonable. Overall, TAs promote a laudable goal in that their intent is to help children prepare for their eventual retirement. There may also be interesting planning opportunities that arise in the future, though this will depend on how the rules are finalized. As things currently stand, however, other types of accounts seem to be more appropriate for most long-term goals.
Resources
[1] What experts want you to know about the Trump accounts and a new massive donation. PBS.org.
