What is a “Trump Account”?

A Trump Account is a new federal savings account created for children. It is designed to give kids a long-term investment account that grows over time, starting at birth.

Think of it as:

• A government-authorized investment account for minors
• Focused on long-term growth

Structured somewhat like a retirement account once the child turns 18.

 

Who can open one?

Generally:

• The account is opened for a child.
• A parent or legal guardian manages it while the child is under 18.
• The child becomes the owner and gains control at age 18.

 

Who controls the account before age 18?

The parent or guardian controls the account and makes the investment decisions while the child is a minor.

The child does not have access or control before age 18.

 

What happens when the child turns 18?

At age 18:

• The account legally becomes the child’s.
• The child gains control of investment and withdrawal decisions.
• The account is treated similarly to a traditional IRA for tax purposes.

 

How can the money be invested?

Investment choices are limited by law.

Trump Accounts must be invested in:

• Low-cost index funds
• Broad U.S. stock market funds
• Funds with very low expense ratios
• No leveraged or high-risk strategies

You cannot:

• Buy individual stocks
• Invest in bonds or alternative assets
• Use complex trading strategies

The goal is simple, long-term growth through diversified U.S. equities.

 

Are contributions tax-deductible?

No.

Contributions are made with after-tax dollars.

 

Do the investments grow tax-free?

The account grows tax-deferred.

That means:

• No taxes while the money stays invested.

Taxes may apply when money is withdrawn.

 

Are gains taxed when distributed?

Yes.

When money is withdrawn:

• The portion representing original contributions is not taxed again.
• The portion representing investment earnings is taxed as ordinary income.

Withdrawals before retirement age may also trigger early withdrawal penalties, similar to traditional IRA rules (unless an exception applies).

 

Is there a penalty for withdrawing early?

Generally, yes.

Because the account transitions to IRA-like treatment after age 18, early distributions before age 59½ may:

• Be subject to ordinary income tax, and
• Trigger a 10% early withdrawal penalty (unless an exception applies).

 

Who holds (custodies) the account?

The account must be held by:

• A bank, or
• An IRS-approved IRA custodian (such as certain brokerage firms).

At launch, the U.S. Treasury will designate initial custodians. Later, accounts may be transferable to other eligible financial institutions.

 

How is this different from a 529 plan?

Trump Account	529 Plan
Broad U.S. stock index investing	Education-focused
Gains taxed when withdrawn	Tax-free if used for qualified education
Child gains control at 18	Owner keeps control
IRA-like tax treatment later	Education-specific tax rules

 

How is this different from a UTMA/UGMA account?

Trump Account	UTMA/UGMA
Limited to index funds	Can invest in almost anything
Tax-deferred growth	Annual taxation of gains
Structured under federal law	State custodial law
IRA-style rules after 18	Full ownership at majority

 

 

Is this account right for every family?

It depends.

A Trump Account may make sense if:

• Parents want long-term stock market exposure.
• They are comfortable with limited investment flexibility.
• The goal is long-term wealth building rather than education-specific planning.

It may not be ideal if:

• The primary goal is tax-free college funding.
• The family prefers broader investment flexibility.
• Liquidity before retirement age is important.

What should families consider before opening one?

Parents should evaluate:

• Long-term goals for the child
• Expected college funding strategy
• Tax bracket considerations

Whether they are comfortable with the child gaining full control at age 18.

 

Bottom Line

Trump Accounts are long-term, stock-market-based savings accounts for children with tax-deferred growth and IRA-style taxation upon distribution. Given the status of the US Social Security system and the low retirement savings rate we are currently seeing, this can be a great way to provide your kids a nest egg that can compound, grow and help them in retirement. 

Here’s a basic example:

Jay opens a Trump account for his newborn son Dominic. He contributes $2,000 per year until his son turns 18. Then contributions stop. Let’s assume the rate of return is 5% (using 5% for this example only – yearly returns will vary). When Dominic turns 18, his account will have around $60,000. If Dominic does not take any distributions and the money remains inside the account until he is 65 years old (earning an assumed 5% per year), the balance will be nearly $600,000.