Trump Accounts: Should You Open One?

If you've been following the news, you've probably heard about the new “Trump Accounts” created by the One Big Beautiful Bill Act.   Whenever Congress creates a new type of investment account, it is worth examining the potential benefits and where it might fit in your portfolio.

Does a Trump Account make sense for you?  Like most things in financial planning, there isn't a one-size-fits-all answer. Trump Accounts are another tool in the toolbox, but they don't replace 529 plans, Roth IRAs, or even regular investment accounts – depending on your unique circumstances.

What Is a Trump Account?
A Trump Account is a tax-advantaged investment account established for American citizens under the age of 18. The account is designed to encourage long-term investing by allowing money to grow over many years before the child reaches adulthood.  Families can contribute up to $5,000 a year to these accounts and the child does not have to have any earned income.  While those contributions are “after-tax,” meaning you can’t deduct them for your taxes, there is a provision that allows participating employers to contribute money without it counting towards your taxable income (up to $2,500 and counts towards the $5,000 annual max).  

Babies born between Jan. 1, 2025, and Dec. 31, 2028, are eligible to receive a federal grant of $1,000 – which is very attractive.  This is a pilot program, and it is uncertain if it will be extended past 2028.

Funds held in these accounts can be invested in eligible mutual funds or exchange-traded funds (ETFs) that track a major index.  Invested funds will grow tax-deferred, meaning no taxes are due until funds are withdrawn from the account.
With a few exceptions, withdrawals are not permitted from a Trump account.  Instead, at age 18 the account can be converted to a traditional IRA account and will then follow traditional IRA rules governing withdrawals and contributions.  At that point, any contributions could be withdrawn tax-free since they were already taxed, but any gains will be taxed at your ordinary tax bracket.

So, Should I Open a Trump Account for my Child?

That depends.

If your goal is paying for college, a 529 plan is still hard to beat.
Qualified withdrawals for education expenses are generally tax-free, and many states offer additional tax benefits for contributions. If higher education is your primary goal, a 529 plan will often remain your first choice.

If your child has earned income, a Roth IRA may make more sense.
A teenager who earns money from a summer job or part-time work can contribute up to the amount of their earned income (subject to annual IRS limits). Because qualified withdrawals in retirement are tax-free, decades of tax-free growth can make a Roth IRA incredibly valuable.
For many young workers, funding a Roth IRA before almost anything else is tough to beat as a long-term strategy.

If you simply want to give your child a financial head start, a Trump Account may make sense.
If your child qualifies for the initial government contribution, that's an immediate benefit. The account may also make sense if an employer offers contributions as part of an employee benefit.
Those features can make the account attractive even if you already use other savings strategies.

What About a Regular Investment Account?
Many people assume a tax-advantaged account is always the better choice, but that isn’t always the case.
A standard taxable brokerage account offers tremendous flexibility. There are no contribution limits, no restrictions on when the money can be used, and long-term investment gains are generally taxed at favorable long-term capital gains rates rather than ordinary income tax rates.
By comparison, earnings withdrawn from a Trump Account are generally taxed as ordinary income under the current law.
For families who don't qualify for the government contribution or don't have access to employer contributions, a low-cost taxable investment account invested in tax-efficient index funds may deserve serious consideration.

As with most financial planning decisions, the right answer depends on your family's goals, tax situation, and timeline. If you're wondering which approach makes the most sense for your family, I’d be happy to help you evaluate the options and build a strategy that's tailored to your unique circumstances.