At first glance, the new “Trump Accounts” might seem like an easy win for parents, guardians, and grandparents with children younger than 18. It’s a chance to kickstart a child’s savings with a built-in $1,000 boost from the federal government and the promise of tax-advantaged growth. But when it comes to contributing your own additional dollars, you may want to think twice before funding it.
While the “free” government contribution is an excellent perk, the long-term structural constraints, potential tax penalties, and sudden transfer of ownership make Trump Accounts a potentially restrictive and tax-inefficient vehicle for a child’s savings compared to traditional alternatives.
Age Restrictions
The structure of a Trump Account changes entirely based on the child’s age, transitioning from a fully locked-down account to a standard retirement vehicle.
- Birth to Age 17: Funds are legally locked. No withdrawals are allowed for any reason except death. Money is invested in low-cost U.S. stock index funds. No investment is allowed in funds that have bonds, international stocks, or specific sector exposures.
- Age 17: ABLE (Achieving a Better Life Experience) Account Exception. Families with a qualifying disabled child can roll Trump Account assets into an ABLE account tax and penalty-free.
- Age 18: On January 1st of the year the child turns 18, the account is automatically converted into a Traditional IRA in the child’s name. They assume full control (and access) to the account and all ability to contribute to the account in line with IRA rules.
- Age 18 to 59 ½: Child has full access to the funds, but withdrawals of earnings or pre-tax seed money will trigger ordinary income tax plus a 10% early withdrawal penalty. There are some penalty exemptions for first-time home purchase and qualifying higher education expenses.
- Age 59 ½ and beyond: The account owner (no longer a child) can withdraw funds without penalties but will still pay ordinary income tax on the investment growth and pre-tax seed portions. Keeping accounting records for 60+ years to know what part of the account value is contributions and what part is growth may be a challenge.
Trump account investment returns are deferred and not taxed in the year they’re earned, which is a benefit. You can shift between investments without realizing capital gains taxes. However, when eligible to be withdrawn the funds distributed are categorized as ordinary income and taxed accordingly, plus a 10% penalty if under age 59 & ½.
529 plans are likely still a better alternative. They offer significant tax advantages for education expenses and up to $35,000 “leftover” in a 529 plan can be rolled into a Roth IRA. More than 30 states offer a state income tax deduction or credit for contributions; contributions grow federally tax-free, and earnings are not subject to federal income tax when you take withdrawals for qualified education expenses.
Custodial brokerage accounts are also a good alternative. They provide flexibility based on needs. Proceeds can be used for anything child-related, including education, car, food, etc. There is no annual contribution limit besides standard gift taxes and there are no investment restrictions. Income and realized capital gains, however, are taxed annually under “Kiddie Tax” rules. And the account balance reverts to the child at age 21, which makes some parents and grandparents uncomfortable.
Since Trump accounts are more geared for a child’s retirement savings, it likely only makes sense to make meaningful contributions once the other alternatives have been maximized.
Fun Fact Easter Egg: Under current law, individual contributions to Trump Accounts do not qualify for the annual gift tax exclusion ($19,000 per recipient for 2026). The “future interest” glitch.
To qualify for the annual gift tax exclusion under IRC Section 2503(b), a transfer must give the recipient an immediate right to use or access the funds (known as a present interest). Because funds in a Trump Account are legally locked up and cannot be accessed by the child until they turn 18, the IRS classifies these contributions as a future interest.
When Congress drafted the One Big Beautiful Bill Act (OBBBA), it omitted the carve-out language that explicitly grants present-interest status to other minor-savings vehicles like 529 or ABLE accounts.
Although Congress will likely pass a technical correction, or the Treasury may issue clarifying regulations, technically for now you would need to file a gift tax return for each contribution you made, even if it was only $25.
As always, we’re happy to talk through your situation and see if utilizing a Trump account makes sense.