Trump Accounts 2026: what they are and whether to open one for your child

For the last few weeks, the question I hear most in my consultations is the same one: "Julio, do I open a Trump Account for my kids, or wait and see how it shakes out?"

Every so often a financial vehicle shows up that deserves real attention. Trump Accounts (you may have seen them called baby bonds or MAGA accounts) are that case right now.

Any parent in the United States can set up a tax-advantaged investment account in their child's name, for kids under 18. For children born between 2025 and 2028 (U.S. citizens with a Social Security number), the federal government adds a $1,000 starting deposit. Parents can contribute up to $5,000 a year on top of that, no matter how much they earn, though contributions can't be made before July 4, 2026.

But the decision isn't whether to open one. The decision is understanding what this account does, what it doesn't do, and how it fits with what you're already building for your family.

What I see most in consultations is people opening accounts with no thread connecting them. Someone mentions a 529, so they open one. A Roth IRA sounds good, so that goes on the list too. Now Trump Accounts show up and it's one more thing. There's no shortage of options. What's almost always missing is the judgment to tie them together.

That's what this article covers: what the account does, what it doesn't, how it compares to what already exists, and what a business owner specifically can do with it.

What is a Trump Account, and how does it work?

Technically, a Trump Account is an account created under Section 530A of the tax code (IRC §530A), established by the One Big Beautiful Bill Act in July 2025. It runs on IRA-style rules during childhood and, once the child turns 18, it's treated as a traditional IRA. I know it sounds strange to talk about a retirement account for a kid, but that's the legal structure they used to build it.

The mechanics are straightforward:

• Your child owns the Trump Account. You, as the parent or legal guardian, act as custodian until they turn 18.
• Only one Trump Account per child. The IRS rejects duplicates if someone already filed.
• For children born between January 1, 2025 and December 31, 2028, the government deposits $1,000 as a starting contribution. You claim it by filing IRS Form 4547 with your 2025 tax return, or later through the trumpaccounts.gov portal, expected mid-2026.
• Parents can contribute up to $5,000 a year, regardless of income, and the child doesn't need any income of their own. That detail matters.
• Investments inside the account are limited to low-cost index funds that track mostly U.S. companies, with annual fees under 0.1%. No individual stocks, no real estate, no crypto.
• The money is fully locked until your child turns 18. No emergency withdrawals, no exceptions before that age.

Growth is tax-deferred: you don't pay taxes while the money grows. But when it's time to withdraw, the tax treatment is what decides whether this account is right for you.

The detail that trips most people up: withdrawals are taxable

Here's the point most people miss, and it changes the whole analysis.

When your child turns 18, the account starts following standard traditional-IRA rules. Any withdrawal is taxed as ordinary income, not as a capital gain. And if they withdraw before age 59½, a 10% penalty applies on top. There are exceptions to that penalty (qualified higher-education expenses, a first home), but the tax on the withdrawal is always due.

That doesn't make the Trump Account a bad tool. It makes it a tool that needs planning to get its full value.

And that's where the long-game move comes in: when your child turns 18, they're probably in the lowest tax bracket they'll ever be in. If they convert the account to a Roth IRA at that point, they pay minimal tax on the converted funds. From then on, everything grows tax-free for good. That conversion isn't automatic. You have to do it on purpose, with an advisor who understands the timing. But over 40 years, the difference between making that conversion and not making it is enormous. (The IRS guidance so far points to Roth conversions being available once the account shifts to traditional-IRA rules, with the finer mechanics still expected in upcoming regulations.)

Trump Account vs 529 vs Roth IRA: the full picture

The question I get most is "which one do I open?" The honest answer is that each does something different, and coordinated well, all three can coexist.

| Vehicle | Needs child's earned income? | Withdrawals | Investment flexibility | |---|---|---|---| | Trump Account | No | Taxed as ordinary income (traditional IRA) | Low-cost index funds only | | 529 Plan | No | Tax-free for qualified education expenses | State plan funds | | Custodial Roth IRA | Yes (documented earned income) | Tax-free in retirement | Broader | | UTMA / UGMA | No | Flexible (no age lock), kiddie tax on gains | Broad |

The 529 is still the ideal vehicle when the goal is education. It grows tax-free and withdrawals are tax-free for qualified education expenses. Under SECURE 2.0, you can now roll up to $35,000 of an unused 529 into a Roth IRA if the account is at least 15 years old, with conditions.

The Custodial Roth IRA is, in pure tax terms, the most powerful tool for kids: everything grows and comes out tax-free. But it has a strict requirement: your child needs documented earned income. No legitimate earned income, no Roth IRA.

The Trump Account comes in from the opposite side: it doesn't require your child to work or earn anything, and the government puts in the first $1,000. That's why it complements the 529 and the Roth IRA instead of competing with them. It's an extra layer in a system, not a replacement.

A fourth option worth keeping on your radar is the UTMA or UGMA custodial account. Unlike the Trump Account, there's no lock: the custodian can use the funds for the child's benefit at any time, and the investment menu is broad. The cost of that flexibility: gains are subject to the kiddie tax, control passes to your child at your state's age of majority (18 to 21), and it counts as the child's asset for FAFSA. It's for medium-term goals where you want flexibility, not for locking money away until 18.

The question isn't which is best. It's which combination makes sense for your situation.

The business owner's angle: your company can contribute

If you own a structured business, there's a possibility that changes the math entirely.

Section 128 of the tax code (new, created by the same One Big Beautiful Bill Act) lets employers contribute up to $2,500 a year, per employee, to that employee's Trump Account or their dependent's. Note that detail: the $2,500 limit is per employee, not per child. That contribution isn't counted as taxable income to the employee, and it's indexed for inflation after 2027. Those $2,500 count inside the $5,000 annual cap per account: if the company puts in $2,500, the family can add up to $2,500 more that year.

For a business owner, that opens two concrete plays:

1. As an employee benefit. Offering the contribution to your employees' kids' Trump Accounts is a low-cost, high-perceived-value benefit, especially on teams with young families.
2. For yourself, if you pay yourself a W-2. If you take a salary as an employee of your own company, the company can offer that same benefit (up to $2,500 per employee per year) toward your child's account.

And if you're also paying your child a W-2 for legitimate work in the business, that earned income lets them open a Custodial Roth IRA alongside the Trump Account. The result: two accounts growing at once, one tax-deferred and one fully tax-free. That combination is one of the smartest moves a business owner with kids can make today.

If you want to go deeper on retirement vehicles for you as the owner, see the Solo 401(k) and the SEP IRA.

How much can a Trump Account grow?

An illustrative example, not a promise. If you capture the government's $1,000 and contribute $5,000 a year for 18 years at an average 6% annual return, the account could pass $150,000 by the time your child turns 18. Market returns vary every year and nobody guarantees them, so treat this as a sense of scale, not a fixed number. The real engine isn't the return, it's consistent contributions over 18 years, plus the government's initial push.

Before you open one: five things that change the math

The investment options are narrow. Only low-cost index funds that track U.S. indexes. If you want real estate, individual stocks, or alternatives, this isn't the vehicle.

The money is fully locked until 18. No exceptions. If an emergency comes up, you can't reach these funds.

At 18, your child takes full control. You stop being custodian. If they decide to withdraw everything at 19, they can. They'll pay taxes and possibly a penalty, but the decision is legally theirs.

Only one account per child. The IRS rejects duplicates once Form 4547 is filed for that child.

The possible impact on college financial aid. When your child applies for aid, institutions assess family assets. Important: the FAFSA treatment of the Trump Account isn't yet regulated by the IRS or the Department of Education. The percentages people cite (around 5.6% for parent-held assets, up to 20% for child-held assets) come from FAFSA's general methodology, not an official classification of this account. A 529 is parent-held and the Trump Account is child-held, so watch it with your advisor.

Frequently asked questions

What is a Trump Account?

A tax-advantaged investment account in a child's name, created under IRC §530A. It runs on IRA-style rules in childhood and becomes a traditional IRA at 18. The government seeds $1,000 for children born 2025 through 2028, and parents can add up to $5,000 a year.

How do Trump Accounts work?

The child owns it, a parent is custodian until 18, the money is invested in low-cost U.S. index funds and locked until 18. Growth is tax-deferred; withdrawals after 18 follow traditional-IRA rules.

How do I open a Trump Account for my child?

You'll be able to open one starting July 4, 2026. To claim the government's $1,000 deposit, you file IRS Form 4547 with your 2025 tax return, or use the trumpaccounts.gov portal expected mid-2026. Your child needs a Social Security number, and only one account is allowed per child.

Should I open a Trump Account for my child?

It makes sense if you see it as one layer of a plan: your child is under 18 with an SSN, you can contribute consistently, and you're clear that withdrawals are taxable unless you plan a Roth conversion. If you need access to the money before 18, it's not the right fit.

Who qualifies / who is eligible?

Any child under 18 with a Social Security number can have a Trump Account. The $1,000 government deposit applies only to U.S.-citizen children born January 1, 2025 through December 31, 2028, but parents can contribute for any eligible minor.

Do Trump Accounts grow tax-free?

No. They grow tax-deferred, and withdrawals are taxed as ordinary income under traditional-IRA rules. The way to get tax-free growth is to convert to a Roth IRA at 18, which takes planning.

When do Trump Accounts start?

July 4, 2026. You can claim the government's initial deposit (Form 4547) with your 2025 tax return or through the trumpaccounts.gov portal, expected mid-2026.

Does the Trump Account replace a 529 or a Roth IRA?

No. All three do different things and can coexist. The 529 is best for education, the Roth IRA is the most powerful long term (but needs the child's earned income), and the Trump Account is a complementary, tax-deferred layer.

Are Trump Accounts a good idea, or a scam?

They're a real, legislated account, not a scam. Whether they're a good idea for you depends on fit: they shine as part of a plan, with the Roth conversion mapped out. On their own, without that plan, the taxable-withdrawal rule can surprise people.