Trump Accounts: A New Way to Save for Your Child’s Future

Parents and grandparents already juggle 529 plans, custodial accounts, and FAFSA rules. The final reconciliation law now adds “Trump Accounts” as a permanent, tax-deferred savings vehicle for children born between 2025 and 2028. Here’s what families and advisers need to know:

Trump account basics

A parent or legal guardian may open one Trump Account per eligible child up until December 31 of the year the child turns 17.

Contributions (from parents, relatives, or employers) are limited to $5,000 per calendar year (indexed for inflation), while any gifts directly from governments or qualified charities are exempt from the cap. Employers also may contribute, but those contributions count toward the same $5,000 annual limit.

As a sweetener, the Treasury would automatically seed the account with $1,000 for every U.S. citizen born between January 1, 2025, and December 31, 2028. 

Every Trump Account is invested in a single diversified fund that tracks a broad U.S.-stock index, keeping investment decisions simple. Earnings grow tax-deferred.

Withdrawals may not be taken before the beneficiary turns 18. After that, distributions follow traditional IRA rules and are taxed as ordinary income, plus any applicable early-withdrawal penalty.

Why an inflation index matters

A $5,000 cap may feel modest now, but indexing lets the limit adjust annually alongside inflation in tuition and housing prices.

Trump Account vs. 529: Similar idea, different tools

The Trump account and 529 plan have some similarities but also key differences.

If college is your only goal, a 529 still wins for tax-free withdrawals. But if you want flexible options—like a down payment or career training—Trump Accounts add a powerful supplement.

Pros, cons, and key considerations

Before you rush to open yet another account, take a breath. Trump accounts come with clear advantages, but they also carry trade-offs that could undercut your long-term goals if you are not careful.

The next few bullets break down the biggest perks, the potential pitfalls, and a few gray areas where the right choice depends on your family’s priorities and tax situation.

Potential upsides

• Built-in diversification of goals: Not every child follows a straight line from diploma to cubicle. Trump account money can pivot with their plans.
• Automatic boost for newborns: A $1,000 head start can compound into real money, especially if invested for 18 years.
• Simple, set-it-and-forget-it investing: One broad market fund, no temptation to tweak.

Possible drawbacks

• Narrow investment choice: No bonds or international exposure to smooth the ride.
• Limited annual cap: $5k/year won’t close a six-figure tuition gap, so you’ll still need a 529 or other vehicles.
• Potential confusion and FAFSA impact. Because Trump accounts sit beside 529 plans, some parents may choose them for the $1,000 seed and later lose the tax-free benefits of a 529. Trump balances also appear likely to be treated like UGMA/UTMA custodial assets on the FAFSA, counted as the student’s property and assessed at a higher rate than parent-owned 529 assets. Without an explicit exemption, that could reduce need-based aid.

What you can do while Congress decides

With the Big Beautiful Bill now signed into law, here’s what to do next:

1. Prepare paperwork for 2025–2028 newborns. If the pilot seed deposit provision survives, you’ll likely need to open a Trump account soon after birth to claim the $1K.
2. Stay alert to state conformity. Some states piggyback on federal definitions, while others write their own rules, which affect tax deductions or credits.
3. Stay tuned for any IRS or FAFSA guidance on how Trump Accounts will be reported.

Bottom line

Trump accounts won’t replace 529 plans, but they give kids a pot of money that grows as they do. A little preparation could unlock one more lever to help the next generation start strong.