Trump Accounts, in a nutshell, are a new type of individual retirement account created for children under the Working Families Tax Cuts provisions of the One Big Beautiful Bill. An account may generally be established for a child who has not reached age 18 by the end of the election year and who has a valid Social Security number. The child, not the parent, is the account owner.

Children born from January 1, 2025, through December 31, 2028, may also qualify for a one time $1,000 federal pilot contribution if the citizenship, Social Security number and election requirements are satisfied. The account can be elected through IRS Form 4547 or the IRS online process.

During the account’s growth period, family members, employers and other permitted contributors may add money to the account, subject to annual contribution limits. The IRS currently states that authorized individual and employer contributions are allowed up to $5,000 annually, with employers able to contribute as much as $2,500 without the amount being treated as taxable income to the employee.

Contributions cannot be deducted by the person making the contributions. The money must generally remain in the account until January 1 of the year the child turns 18. After the special growth period ends, the account is generally governed by the rules applying to traditional IRAs.

At launch, the default investment is a low cost fund tracking the S&P 500. Treasury has also selected several broad market index exchange traded funds for the program’s investment portfolio. This approach tries to provide investment diversification, but it does not provide the investment freedom available in many brokerage accounts or self directed IRAs. You can find the Trump Account app here.

If the family’s main objective is only paying for education, a 529 plan will frequently have the clearer tax advantage.

Earnings in a 529 plan are generally not subject to federal income tax when using them for qualified education expenses. Those expenses can include eligible tuition, fees, books and certain room-and-board costs. Contributions are not federally deductible, although some states provide their own deduction or credit.

A 529 plan also allows the account owner to retain control of the money. That may matter to parents and grandparents who want to help a child without immediately making the child the legal owner of the assets.

What happens if the child receives a scholarship or does not attend college? That concern has been reduced somewhat. Under the current law, certain funds from an established 529 account may be transferred directly into the beneficiary’s Roth IRA. Currently the lifetime rollover limit is $35,000, and the account must generally have been maintained for more than 15 years. Annual Roth IRA limits and other restrictions still apply. Each brokerage or state 529 plan has its own paperwork. Your tax preparer will use the information from Form 1099-Q and Form 5498 (along with your records) to ensure the transaction is reported correctly if necessary.  

For a family reasonably confident that the money will be used for education, the 529 plan may still be the better first account.

A Roth IRA may provide the strongest long-term tax result, but a child generally needs taxable compensation to qualify for regular contributions.

For 2026, total traditional and Roth IRA contributions are generally limited to $7,500 or the person’s earned taxable compensation for the year, whichever is less. Therefore, a child who earns $3,000 working in the family business may generally contribute no more than $3,000, even if a parent supplies the actual cash.

Roth contributions are not deductible. However, qualified distributions, including qualifying earnings, are tax-free. Regular contributions can generally be recovered without tax, while special rules apply to earnings and converted amounts.

This can make a custodial Roth IRA especially attractive for a teenager who has legitimate wages from a farm, rental operation or family business. The key word is legitimate. The child must perform real work, the compensation should be reasonable, and the family should maintain payroll and employment records.

A Roth IRA may be a better choice than a Trump Account once the child has earned income because its qualified retirement withdrawals can ultimately be tax free. A Trump Account, by contrast, generally transitions into the traditional IRA system after the child reaches adulthood.

A taxable brokerage account has no special education or retirement purpose. That is both its weakness and its greatest advantage.

The money may generally be used for college, a home, a business, transportation or an emergency. There is no requirement that the child wait until retirement, and the investments are not limited to an approved government program.

The tradeoff is taxation. Interest, dividends, mutual-fund distributions and realized capital gains can create current taxable income. A child’s investment income may also become subject to the special tax rules commonly called the “kiddie tax.”

A brokerage account may be appropriate when flexibility is more important than receiving the maximum possible tax advantage. However, families should carefully consider whether the account should be owned by the parent, held under a custodial arrangement or established through a trust. Ownership determines who controls the assets, who reports the income and when the child may gain control.

The most obvious beneficiaries are families with children born during the 2025–2028 pilot period. Failing to make the election could mean leaving the $1,000 federal contribution unclaimed.

Trump Accounts could also benefit families that want to begin investing for a child before the child earns wages. A Roth IRA is not ordinarily available without compensation, while the Trump Account does not impose that requirement during its special growth period.

Small business owners may find the employer contribution feature particularly interesting. A properly structured employer contribution could help an employee’s child while providing a benefit that is not treated as taxable income to the employee, subject to the governing limits and final administrative rules. Before adding such a benefit, the employer should coordinate with its payroll provider and tax adviser rather than simply transferring money and hoping it qualifies.

Higher income families will probably be better positioned to make the maximum annual contributions. However, families with fewer financial resources may receive a proportionately greater benefit from the initial $1,000 deposit because that money can remain invested and compound for many years.

That raises a fair question. Will Trump Accounts reduce the wealth gap, or will they mostly provide another advantage to families already able to save?

The answer may depend less on the government and the account itself, instead leaving the answer up to if employers, relatives, charities and other contributors help fund accounts for children whose parents cannot.

First, parents of an eligible child should determine whether the child qualifies for the $1,000 pilot contribution and submit Form 4547 through the IRS process. The IRS states that the online procedure generally requires the child’s Social Security number, birth date and address.

Second, decide what the money is intended to accomplish before choosing an account. A family could use a 529 plan for expected education expenses, begin a Roth IRA when the child starts earning income and use a Trump Account for long-term investing. These accounts can work in combination with each other and do not necessarily have to compete.

Do not select an account based only on its tax treatment. Access, ownership, investment choices and the child’s future control are equally important.

Do not assume the $1,000 contribution will appear automatically. An election must be made, and the child must satisfy the applicable requirements.

Finally, do not put every available dollar into an account that cannot easily be accessed. Families still need emergency savings, adequate insurance and sufficient retirement savings for parents.

The encouraging part is that families now have another tool. The goal is not to predict every decision a child will make 18 years from now. The goal is to begin creating opportunities while there is still time for compounding interest to do some of the work.

This article is provided for informational and entertainment purposes only. It is not tax, legal, investment or financial advice specific to any person, business or organization. Tax laws, program rules and individual circumstances may change. Consult qualified advisers before opening, funding or withdrawing money from any account discussed here.

The Smith Advisory LLC helps business owners, farmers and real estate investors understand how tax decisions, tax ready books and long term financial planning work together. To discuss how these rules may affect your family or business, contact The Smith Advisory LLC at [email protected].