Trump Accounts” (IRC 530A): what families should know before you open one
For folks with young children, there’s recent buzz about the new Trump Account—officially a Section 530A account. Trump accounts were packed into the One Big Beautiful Bill Act (OBBBA) passed in 2025. It’s positioned as a jump-start for long-term investing for minors, and it has some IRA-like DNA with some unique rules. The rules for this type of account are brand new, so this vehicle is still subject to regulatory interpretation.
Below is the plain-English version I’ve been walking clients through: who qualifies, how much you can add, whether there are income limits, how withdrawals are taxed, and where Kiddie Tax can sneak in. I’ll also compare Trump Accounts to the other common accounts for minors (529s, custodial accounts, Roth IRAs for kids, etc.).
As always: use this as education, not as personal tax advice. Your best move is to coordinate with your financial advisor and tax professional to make sure it fits your overall plan.
What is a Trump Account?
At a high level, a Trump Account is a tax-advantaged account for a child under 18. It works similarly to a traditional IRA in many respects, with special rules while the child is a minor (AKA the “growth period”). The IRS describes Trump Accounts as a new type of IRA for eligible children, with contributions generally not allowed until July 4, 2026. (IRS)
A few headline features:
Owned in the child’s name with an adult acting as the authorized custodian while the child is under 18. (IRS)
Investments are restricted during the growth period to certain index-tracking mutual funds/ETFs focused on primarily U.S. equities.
Withdrawals are heavily restricted until the year the child turns 18.
Participation is incentivized with a $1,000 federal contribution for kids born in 2025–2028.
The IRS guidance is very specific: the federal government will make a one-time $1,000 pilot program contribution for an eligible child born on or after January 1, 2025, through December 31, 2028, assuming the required election is made.
Two timing notes that matter in real life:
You generally can’t contribute until July 4, 2026.
The IRS Form 4547 instructions indicate the Treasury won’t deposit the pilot contribution earlier than July 4, 2026, even if you elect earlier.
Contribution limits, employer contributions, and “income limits” (or the lack of them)
Annual contribution limit (family + others)
During the growth period, the total of “regular” contributions (including employer contributions) is subject to an annual limit of $5,000 per child (indexed for inflation after 2027).
Important nuance: the IRS materials distinguish between:
Regular contributions (subject to the $5,000 annual cap), and
Certain categories are not subject to the annual limit, such as the $1,000 federally funded pilot contribution, certain qualified general contributions (e.g., from certain entities/charities), and qualified rollovers.
Employer contributions (Section 128)
Employers may contribute up to $2,500 per year under an employer program, and the IRS notes this amount counts toward the $5,000 annual cap and is generally excluded from the employee’s taxable income.
Are there income limits?
Not in the way people expect. With Roth IRAs, families immediately ask about income phaseouts. With Trump Accounts, the core IRS instructions highlight two big differences:
Contributions can be made even if the child has no earned income.
Contributions are not tax-deductible, so there are no income phaseouts on contributions.
Surprisingly, there’s no income limit on the $1,000 federally funded pilot contribution either, making this account a no-brainer for parents welcoming new children between 2025-2028.
So when someone asks me, “Do we make too much to contribute?” the practical answer is usually: income doesn’t factor into eligibility.
Distribution rules and how they’re taxed
Before age 18: distributions are mostly a “no”
During the growth period, distributions are generally restricted to a short list (like certain rollovers, excess contributions, death).
Starting the year the child turns 18: Trump Accounts behave like a traditional IRA
After the growth period (starting January 1 of the year the child turns 18), “most of the rules that apply to traditional IRAs will generally apply,” including the possibility of the 10% early distribution penalty under §72(t) unless an exception applies.
Taxation: ordinary income (with “basis” tracking for after-tax contributions)
Here’s the part most people miss:
Earnings grow tax-deferred, but when money comes out, taxable amounts are generally taxed as ordinary income (like a traditional IRA). This is why Trump Accounts are often not the first choice if your main goal is education funding (where a 529 can be tax-free for qualified expenses). (Fidelity)
Contributions from sources other than the pilot/general/rollover categories can create basis (after-tax money) in the account; taxation of distributions then follows traditional IRA “basis” mechanics (think Form 8606 concepts, pro-rata treatment).
If you take one sentence away: this account can be tax-advantaged while it grows, but it is not “tax-free money” on the way out. One planning idea to consider: If IRA rules apply, convert the Trump Account to a Roth IRA at age 18 for continued tax-free growth.(Ed Slott and Company, LLC)
What about Kiddie Tax?
Kiddie Tax applies when a child has unearned income above a threshold and meets age/support rules. Basically, minors’ unearned income over $2,700 can be taxed at their parents’ marginal tax rates. The Kiddie Tax Rule disincentivizes high-income parents from transferring assets to their lower-income children to avoid paying taxes at high marginal rates. Essentially, the Kiddie Tax taxes children’s unearned income (over $2,700) at the parents’ marginal tax rates. (IRS)
How Trump Accounts intersect with Kiddie Tax
During the growth period, distributions are generally restricted anyway, so Kiddie Tax issues are often moot.
After 18, distributions are possible and are generally unearned income to the child. If the child is still a dependent and falls into the Kiddie Tax age/support rules, large taxable distributions could push them into Kiddie Tax territory.
A planning example (conceptual, not advice):
If an 18–23-year-old full-time student is still a dependent and takes a taxable distribution that creates significant ordinary income, you’ll want to coordinate carefully—because some of that income may effectively be taxed at the parent’s marginal rate once it clears the Kiddie Tax threshold.
This is one of those “looks simple, gets complicated fast” spots—especially if the student also has scholarships, part-time wages, education credits, or financial aid considerations.
How do Trump Accounts compare with other accounts for minors?
Here’s how I frame the comparison in real planning conversations:
529 plan (college / education first)
Best when the goal is education.
Tax-deferred growth and tax-free withdrawals for qualified education expenses (federal rules).
High contribution capacity (no federal annual cap, but gift-tax rules apply; many families use annual exclusion gifting or 5-year superfunding). (Kiplinger)
Owner (usually parent) keeps control—beneficiary can be changed.
Tradeoff: Less flexible if the child doesn’t have education expenses (though rules have evolved, including limited Roth IRA rollover options under specific conditions).
Custodial brokerage account (UTMA/UGMA)
Best for flexibility and early-life goals.
No special tax shelter: dividends/capital gains can be taxable annually.
Kiddie Tax is the big watch-out, but for modest income levels there’s effectively a “starter” band before parent-rate taxation kicks in.
Irrevocable gift: child gets full control at the age of majority (varies by state).
Roth IRA for kids
Best when the child has earned income.
Contributions require earned income and are capped under IRA limits.
Potential for tax-free qualified withdrawals later.
Great “first job” account—often my favorite long-term vehicle when it’s available.
Tradeoff: Not everyone has eligible earnings; also watch contribution documentation (W-2/1099 or clear records).
Coverdell ESA
Education-focused, but with smaller contribution limits and more constraints than many 529s. (Still useful in certain edge cases.)
ABLE account (when eligible due to disability criteria)
Powerful for qualified disability-related expenses, with its own rules and benefits coordination—worth reviewing if the child qualifies.
Where Trump Accounts fit
Trump Accounts tend to land in the middle:
More tax structure than a custodial brokerage (tax-deferred growth), (Schwab Brokerage)
Less education efficiency than a 529 (because withdrawals are generally taxable), (BeachFleischman CPAs)
Less “earned income friendly” than a Roth IRA for kids (because a Roth IRA can be phenomenal when available), but Trump Accounts don’t require the child to have compensation.
Practical planning thoughts (the stuff families actually ask)
A few questions I’d bring to your advisor:
What is this money for? Education? First home? A head start on retirement? General flexibility?
Will the child likely be subject to Kiddie Tax at 18–23? If yes, map out “worst-case” distribution scenarios before you touch the account.
Are you already maxing the “big rocks”? (Emergency fund, employer match, retirement contributions, high-interest debt.) A shiny new account shouldn’t derail the basics, but still get that free $1,000 from the USA for any child born 2025-2028.
How does this coordinate with 529 strategy? In many households, a 529 still does the heavy lifting for education because of tax-free qualified withdrawals.
How do I open a Trump Account?
Trump Account opening is a government-administered launch process tied to IRS elections. Here’s the process as currently outlined by the IRS and financial firms:
File IRS Form 4547 — This is the election to establish a Trump Account for an eligible child. You can submit it with your 2025 tax return or any time before contributions begin. (Vanguard)
The IRS/Treasury creates the account — Once the election is processed, the Treasury Department will coordinate with approved trustees (financial institutions that support Trump Accounts). (Fidelity)
Accounts “go live” mid-2026 — Families should receive further instructions and access via IRS notices and portals (including, eventually, www.trumpaccounts.gov). Contributions and activity aren’t expected to begin until July 4, 2026. (Vanguard)
Parents or guardians act as authorized individuals — Until the child turns 18, a parent/guardian manages the account on the child’s behalf. The child is the legal owner from day one. (Fidelity)
Bottom line: Open it early (with Form 4547), so the account exists and is ready to receive the $1,000 seed contribution (if eligible) and future voluntary contributions.
This advisor’s take (since you asked)
This seed contribution is part of a campaign promise to “give every American child a $1,000 investment account at birth”. But these funds are not accessible until age 18, and even then, distributions will be taxable as ordinary income and may be subject to an early withdrawal penalty.
Here’s how I see it: The government gives you $1,000 to invest today. If this account grows at 10%, you’d have $5,560 at age 18. At a 24% marginal tax rate and 10% early withdrawal penalty, the distribution creates a tax of $1,890 (a 5% annualized return for the US government).
If you wait until age 60, your $1,000 seed investment would be worth over $300,000, and the tax on the distribution is over $73,000. The annualized return for the US government is 120% due to the compounding effect of investments.
In reality, Trump Accounts are more like an investment in future treasury revenue rather than a tool to help parents with today’s cost of raising children. That said, if your child is born during these years, free money is free money.
Bottom line
Trump Accounts are real, they’re new, and they can be useful—especially because of the $1,000 seed contribution for children born 1/1/2025 through 12/31/2028 and the ability to contribute without the child having earned income.
But the “gotchas” are also real:
Withdrawals are generally taxable (ordinary income treatment for taxable portions),
Early distribution rules/penalties may apply after the growth period before age 59 ½,
And Kiddie Tax can matter if a dependent young adult takes meaningful taxable distributions.
If you want this to actually help your family long-term, don’t open it in isolation—fit it into the plan with your financial advisor and tax professional.