What We Know So Far:
What Are Trump Accounts?
The One Big Beautiful Bill (OBB) made available a new kind of account type: Trump Accounts. Trump Accounts are new tax-advantaged accounts available to children born between January 1, 2025 and December 31, 2028. These accounts behave like a custodian account mixed with an IRA. A Trump Account essentially works as a nondeductible IRA for minors. The Trump Account is unique in the fact the child is the legal owner and beneficiary of the account.
Funding the Accounts
When a Trump Account is opened, the US Treasury deposits $1,000. Parents, guardians, and employers can contribute up to $5,000 annually. The contribution is not tax deductible. Funding can occur when the account is opened and each subsequent year until the account beneficiary has reached the age of 18, when the account becomes accessible to the beneficiary.
Growth and Distributions
The growth of Trump Accounts is tax deferred. This means there are no capital gains taxes required for the growth, so these accounts grow much like 529 Plans do.
The distributions for Trump Accounts are a bit more complicated and less advantageous than 529 Plans; however, Trump Accounts can be used for essentially anything, where a 529 Plan is limited to educational expenses.
Since the contributions were made with after-tax dollars, the basis – or the amount of the total contributions – is received without tax. The growth in the Trump Account is taxable as income. The tax payable from distributions would be on a proportionate basis, meaning if 75% of the account balance was nontaxable basis and 25% was taxable growth, then 75% of the distribution would be nontaxable and 25% of the distribution would be taxed as ordinary income.
The account becomes available to the beneficiary at age 18. If a distribution is taken prior to age 18, there is a 10% penalty assessed on the entire distribution, unless there is an exception, such as a first-time home purchase or educational expenses.
Comparison to a 529 Plan
While I don't think Trump Accounts will take the place of 529 Plans (for those eligible to open Trump Accounts), but they do have some interesting similarities. The biggest similarity is that both Trump Accounts and 529 Plans attempt to benefit children; however, 529 Plans have much stricter guardrails in place, as their sole purpose is paying for approved education expenses. When deciding between a Trump Account and a 529 Plan, it's important to remember you can choose both. Below is a side-by-side comparison of Trump Accounts and 529 Plans.
Rules Will Likely Change
With Trump Accounts being a new type of account, the actual account characteristics are still being considered. As these accounts start being opened and funded, new rulings will apply as the IRS will find various ways the laws need to change.
Impact Moving Forward
Trump Accounts are scheduled to be available in the summer of 2026, and it appears Trump Accounts might be a good way to successfully transfer up to $5,000 annually to children. As a result, there will be plenty of financial planning and estate planning uses for these accounts. Time will tell if these accounts will successfully build wealth by giving children born between 2025 and 2028 a head start in saving. I’m pretty sure there will be several eighteen-year-olds in 2043 who waste all these savings on a new car!