Written By Meagan McGuire, CFP®, ChFC®, CSLP®
Updated on May 27, 2026
If you're a new parent or expecting a baby, you've probably seen the headlines about Trump Accounts and the $1,000 in federal seed money the government is putting in for kids born between 2025 and 2028. A lot of our clients are asking the same question this year: should I open one for my baby? Free money from the government, S&P 500 exposure, tax-deferred growth — it sounds like a no-brainer.
The honest answer is more nuanced. Trump Accounts have a real place in a child's wealth-building plan, but they're not the best account for any single purpose. If you understand what they actually do, you can use them well alongside what's already working: 529s, UTMAs and Roth IRAs.
What is a Trump Account?
A Trump Account is a tax-deferred investment account for children under 18 with a Social Security number, designed to hold S&P 500 index exposure. The accounts were created under the One Big Beautiful Bill Act and officially open for contributions on July 4, 2026, which is America's 250th birthday.
The headline feature is the $1,000 federal seed deposit, but only kids born between 2025 and 2028 qualify. If your child is older, you can still open the account, but you don't get the seed money. Some kids may also qualify for an additional $250 from the Dell Foundation if they live in a zip code with a median income at or below $150,000. You can check eligibility at investamerica.org/dell.
You can open the account two ways: file Form 4547 with your tax return, or sign up online at trumpaccounts.gov. There's no deadline pressure since you can't fund the account before July 4, 2026, anyway.
How contributions and distributions actually work
Contributions are capped at $5,000 per year in aggregate from all sources: parents, grandparents, aunts, employers, anyone. That cap is inflation-adjusted going forward. The federal seed money and philanthropic donations don't count toward the $5,000 limit, but employer contributions do.
Contributions are not tax deductible. That's the first catch, and it's an unusual design — most tax-deferred accounts at least offer a deduction on the front end. Here, you put in after-tax money, and the growth is taxed later as ordinary income at the child's rate.
The bigger catch is on the back end. No distributions are allowed before age 18, with one narrow exception for converting to an ABLE account for a disabled child.
Once your child turns 18, traditional IRA rules apply: a 10% penalty plus ordinary income tax on any gains. The standard IRA exceptions waive the 10% penalty for things like a $10,000 first-home purchase, qualified higher education expenses and medical expenses over 7.5% of adjusted gross income (AGI). Starting a business is not one of them.
The most interesting planning move: at age 18, your child can convert the Trump Account to a Roth IRA. The contributions you made should come out tax-free at conversion (similar to nondeductible IRA basis), and only the growth gets taxed. Done in a low-income year, that conversion can be very efficient.
Trump Account vs. 529, UTMA and Roth IRA
For most families, the real question isn't whether to open a Trump Account. It's how it compares to what you'd otherwise use. How the four main options stack up for a child born today:
| Account | Best for | Annual limit | Tax treatment | Cons |
|---|---|---|---|---|
| 529 Plan | Saving mainly for college and other education costs | Depends on your state’s rules | Money can grow tax‑free if used for education | If you use it for non‑school costs, the earnings are taxed and hit with a 10% penalty |
| Trump Account | Building long‑term savings for your child, with the option to turn it into a Roth later | Up to $5,000 total per year from family and others | Money grows tax‑deferred; earnings are taxed as regular income when withdrawn as an adult | No withdrawals before 18, and after that it follows IRA rules (taxes and penalties for early withdrawals) |
| UTMA/UGMA | General investing for your child with maximum flexibility | No set legal limit, but large gifts can have gift‑tax issues | Investment earnings are taxed under “kiddie tax” rules at the child/parent rate | Your child legally controls the money at 18–21, and it counts as their asset for financial aid |
| Roth IRA for kids | Long‑term retirement savings if your child has a job | Up to $7,500 or your child’s total earned income (whichever is less, in 2026) | Contributions can come back tax‑ and penalty‑free; qualified retirement withdrawals are tax‑free | Your child must have real earned income |
If you're certain the money will go to college
If you're certain the money will go to college, a 529 wins every time. Tax-free growth, tax-free qualified withdrawals and a state tax deduction in most states (California and North Carolina are exceptions).
The FAFSA treatment is also favorable: a 529 owned by a parent counts at roughly 5% to 6% toward the Expected Family Contribution, versus 20% for assets held in the child's name.
If you want maximum flexibility for long-term wealth
If you want maximum flexibility for long-term wealth and you're willing to manage taxes proactively, a UTMA is underrated. The reason is the kiddie tax structure.
By harvesting gains each year up to the kiddie tax threshold (around $2,700 for 2025, inflation-adjusted), you step up the cost basis at the child's near-zero tax rate. Over 18 years, that turns into a much lower tax bill at the end.
When running the numbers, the UTMA usually wins for a 60-year horizon. The one scenario where a Trump Account pulls ahead is if you convert it to a Roth IRA at 18 and let it grow untaxed for decades.
If your child has legitimate earned income
The Roth IRA for kids is a separate conversation. It only works if your child has legitimate earned income, meaning a real job at a marketable wage. Paying your kids $5,000 an hour to appear in your dental practice's Instagram ads doesn't count, and the IRS scrutinizes those arrangements heavily.
Should you open a Trump account?
If you have a child born between 2025 and 2028, the answer is simple: open the Trump Account and grab the free money. The seed deposit is a no-strings $1,000 (potentially $1,250 with the Dell Foundation match), and you don't have to contribute another dollar to keep it. That's a clean win.
Beyond that, treat the Trump Account as one bucket among several, not the centerpiece.
Across all of these accounts, one thing consistently shows up in the numbers: the account type matters less than the fact that you're investing for your child early and often. The difference between $100,000 and $200,000 at age 25 isn't whether you picked the right wrapper. It's whether you started.
If you're a high-income professional trying to figure out how all these pieces fit into your broader plan, including how children's accounts interact with your own student loan strategy and tax planning, that's the work we do for clients every day at SLP Wealth.
Jake Courtney, CFP®, CSLP®, contributed to this article.
