A new savings account is available for parents investing in their children’s future. Trump accounts, officially known as section 530A accounts, are parental funded retirement accounts that don’t have an earnings requirement for contributions and are eventually treated like a traditional IRA.
A Trump Account is for kids under 18. Any child born between 2025 and 2028 gets a one-time $1,000 deposit from the government to get started. The annual contribution limits, not including the government’s “seed” money, is $5,000 per eligible child. There’s no job requirement for the child, unlike a custodial Roth IRA, so you can start funding it from birth like a 529 plan or custodial account. Money is invested automatically into a stock market based index fund and “locked up” until the child turns 18.
Between the ages of 0-18, there are no tax deductions or tax liabilities involved with utilizing a trump account. When parents or family members make contributions to an account, they establish a “basis” or principal in the account that won’t be taxed in the future. This money has already been taxed before gifting so there are no liabilities due when taking a distribution. The growth on those contributions, however, will be taxed as ordinary income upon distribution. Between the ages of 18 and 60, Trump accounts are treated as normal IRA accounts and involve penalties for withdrawals prior to age 59 ½ with the exception of education, purchasing a home, and starting a business.
What then, are the advantages of a Trump Account? The primary focus of section 530A accounts is to give children in the United States a head start saving for retirement. There have been countless statistics posted about Americans that are behind or ill prepared for retirement or the inability to work. The benefit of investing at a young age, is that the power of compounding eases the burden for children to save as much for retirement during their working years making it easier for them to achieve a successful end of career transition.
The downside? All of that compounding on top of the contribution basis will be taxed as ordinary income whether used to help fund education or as retirement income. Not great. But once your child turns 18, the account can be converted into Roth IRA assets. At that age, they’re likely sitting in a low tax bracket as a student or early career professional, meaning:
- They can convert the balance to a Roth at a relatively low tax cost.
- From there, it grows completely tax-free for the rest of their life.
- If you cover the conversion tax yourself rather than pulling it from the account, the full balance keeps compounding.
Spreading that conversion over a few years, instead of all at once, also helps keep it in a lower bracket. You have to keep in mind tax considerations like the “kiddie” tax, but careful execution can reap tax free compounding benefits for years and years to come.
This isn’t for everyone. If your priority is college savings, a 529 still does that job better, not to mention the 529 to Roth rollover that is capped at $35,000 a child. But if you’re already gifting to kids or grandkids and thinking about multi-generational wealth, this is worth a conversation.
To sign-up for a Trump Account, visit https://trumpaccount.com.
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Registration & Services: truFP is an SEC-registered investment adviser. SEC registration does not imply a certain level of skill or training, nor does it constitute an endorsement of the firm by the Commission.
Educational Content Only: The information provided in this article, authored by Austin Rowland, is for educational and informational purposes only. It does not constitute personalized investment, legal, or tax advice, nor does it constitute a solicitation, offer, or recommendation to buy or sell any security or to adopt any specific investment or tax strategy.
Tax & Regulatory Planning Risks: This article discusses Section 530A accounts (“Trump Accounts”), which are subject to specific federal legislation. Tax laws, IRS regulations, and safe harbors—including rules surrounding contribution basis, ordinary income tax on distributions, future Roth IRA conversions, and the “Kiddie Tax”—are highly complex, subject to change, and vary based on individual circumstances. truFP does not provide formal tax or legal advice. Readers must consult with a qualified Certified Public Accountant (CPA) or tax attorney before executing any strategy discussed herein.
Market & Investment Risk: All investing involves risk, including the potential loss of principal. Section 530A accounts mandate investments in stock market-based index funds, which carry inherent market risk. There is no guarantee that any investment strategy will achieve its objectives, ease retirement burdens, or prevent losses. Past performance is no guarantee of future results.
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