One of the most talked-about provisions in the One Big Beautiful Bill Act[1] is the creation of a new type of investment account for children known as “Trump Accounts.”
We’ve been getting a lot of questions about these accounts (for both children and grandchildren), so we thought it would be helpful to outline how they work, what families should know about their tax treatment, and how they may fit into a broader financial plan. Be forewarned, this note is a bit longer than usual, but there’s a lot to cover, so we wanted to be sure that we addressed the questions we hear most often.
What is a Trump Account?
A Trump Account is a new, tax-advantaged way for children to save and invest[2]. These accounts combine features from several existing savings vehicles, creating a structure that is somewhat unique. Here are a few of the key details:
- Can contribute up to $5,000 per year[1, 3].
- Contributions are invested in low-cost U.S. equity funds[1, 2].
- All growth is tax-deferred until distribution[2].
- Upon reaching age 18, beneficiaries can begin taking distributions, but with very specific guidelines[3].
- Taxes on distributions are assessed on a pro-rata basis. This means that basis (that is, contributions) is distributed tax-free and earnings are taxed as ordinary income[2].
Let’s go into each of these bullet points in more detail.
Contributions to Trump Accounts
The most widely discussed feature of the legislation is the federal government’s $1,000 seed contribution provided for children born between 2025 and 2028[1] who have a Trump Account (meaning an account must be opened to receive it).
Beyond the seed contribution, family members, friends, guardians, and even the child can contribute up to a combined limit of $5,000 per year[1, 3].
Employers, states, and philanthropic organizations may also contribute, but are subject to somewhat different limitations[2].
Unlike some savings vehicles, there are no income requirements or limitations to fund an account. All that is required is that the child is 17 or younger and has a valid Social Security number[2, 3]. Only one funded Trump Account is allowed per child[3], so a single account will serve as the destination for all contributions made on the child’s behalf.
There Are Limited Investment Options
At this time, there is a limited menu of low-cost funds (expense ratios are capped at 0.10%) to invest into that are all designed to track broad U.S. stock market indexes[1, 3].
As long-term investors, there is a lot to like about this structure. Broad index-based funds and ETFs keep costs low and provide exposure to the long-term growth of the stock market. However, this benefit is not without potential shortcomings.
Because investments are limited to U.S. equities, international diversification is not available, so families who make significant contributions to these accounts may need to diversify elsewhere within their (or their child’s) broader investment portfolio.
Additionally, because the accounts are invested entirely in equities, there is currently no ability to reallocate into bonds or other lower-volatility assets as the child approaches age 18, if necessary. It’s possible that future guidance could expand the available investment options.
How Taxes Work on Trump Accounts
One key feature that distinguishes these accounts from custodial accounts such as UGMAs is that investment growth is tax-deferred[2], like a Traditional IRA.
In fact, on January 1st of the calendar year the child reaches age 18, Trump Accounts will generally be governed by the same distribution rules as Traditional IRAs[4]. Under those rules, penalty-free (though not tax-free) distributions can be made for qualified education expenses, a first-time home purchase up to $10,000, and a few other scenarios[3].
When distributions occur, contributions (basis) are returned tax-free while investment gains are taxed as ordinary income[2].
The big benefit of these accounts is the tax-deferral feature because, if funded early and left untouched from childhood until retirement, the compounding potential could be substantial.
For example, $1,000 invested each year from birth to age 18 could grow to more than $1.3 million by age 65, assuming an 8% annual return[7].
How Trump Accounts Compare to Other Child-Savings Vehicles
While considering the information above, it may be helpful to compare these accounts to other savings options for children:
529 Plans
These accounts are designed for education savings and offer broader investment options and tax-free withdrawals for qualified education expenses[5]. For families whose primary goal is saving for college, a 529 plan may be the better option.
Custodial Accounts (UGMA/UTMA)
Custodial accounts offer full investment flexibility but no tax-deferred growth. Investment income may also be subject to the “kiddie tax.”[5]
Roth IRAs for Working Teenagers
Once a child has earned income, a Roth IRA can be powerful because contributions grow tax-free and qualified withdrawals are not taxed[6].
Trump Accounts fall somewhere in between these options. They offer tax-deferred growth and broad market exposure but come with more limited investment flexibility, and distributions (above basis) are ultimately taxed as ordinary income.
A Few Other Notes
Trump Accounts are owned by the minor but managed by a parent or guardian while the child is under age 18. During this period, the assets are generally not accessible for use by the child[3].
Because the account is owned by the child, families should consider how it may be treated in financial aid calculations[5]. The specific treatment may depend on how future regulations and financial aid rules evolve.
How to Open a Trump Account
You can open a Trump Account by filling out Form 4547[1] or the application online, which can be found here: https://form.trumpaccounts.
Final Thoughts
For many families, these accounts offer a simple and low-cost way to begin investing for a child’s future. The opportunity to begin their investing journey when they have many decades of compounding ahead of them could make even modest contributions meaningful.
That said, these accounts are best viewed as one tool among many. Depending on a family’s goals—such as education savings, long-term wealth building, or tax management—other accounts such as 529 plans, custodial accounts, or Roth IRAs may be a better option[5].
As always, the best approach is to consider your family’s specific circumstances and broader financial strategy.
If you have questions about this topic, please let us know. As always, stay the course!
- [1] Trumpaccounts.gov; Form 4547; One Big Beautiful Bill Act – for Trump Accounts, see Section 530A
- [2] Vanguard
- [3] Fidelity
- [4] IRS Guidance
- [5] Franklin Templeton
- [6] Fidelity
- [7] Investor.gov ($83.33 per month invested for 18 years compounded at 8% per year = $37,448; $37,448 compounded at 8% for 47 years (from age 18 to 65) = $1.3m)
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Gough Wealth Management is not a registered broker/dealer and is independent of Raymond James Financial Services.
*Material created by Money Visuals, LLC, an independent third party not affiliated with Raymond James.
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Past performance is not indicative of future results. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
