The Best Time to Start a Financial Plan is Now
by Tricia Bush, CPA, CFP® Owner, AAA Advisory LLC
Trump Accounts
A New Way to Save for Your Child’s Future
With the recent launch of Trump Accounts, many parents and grandparents are asking the same question: Should I open one?
Like many financial planning decisions, the answer is: it depends.
What Is a Trump Account?
A Trump Account is designed to give children a head start on retirement savings. The goal is not only to help build wealth over time, but also to introduce children to the power of investing, compound growth, and long-term financial planning.
Imagine having an additional 18 years of investment growth before you even begin your career. Those extra years can make a meaningful difference because time is one of the most powerful tools available to investors.
However, this is also where some confusion exists.
A Trump Account is not designed for current expenses, and it is not a replacement for other savings accounts you may already use for your children.
This Is Not a College Savings Account
A Trump Account is different from accounts many families are already familiar with, such as 529 plans and UTMA accounts. A Trump Account is intended specifically for long-term retirement savings.
Money contributed to a Trump Account is generally expected to remain invested until retirement age (currently age 59½ unless another exception applies). In other words, this is not an account you should plan to use for college tuition, a first car, a wedding, or other short-term expenses.
Don’t Miss the Free Money
One of the most exciting features of these accounts is the opportunity for an initial government contribution.
Children born between 2025 and 2028 may be eligible to receive a $1,000 government-funded contribution simply by opening a qualifying account. In addition, some employers are beginning to offer contributions to employees’ children’s Trump Accounts as a workplace benefit. If your employer provides this option, it is another opportunity to take advantage of available benefits.
How Much Can You Contribute?
Contributions are limited to $5,000 per year. This annual limit applies to the total contributions made on behalf of the child, meaning parents, grandparents, and others would all contribute toward the same limit.
One convenient feature is that contributions can be made through an easy-to-use app, making it simple for parents to add money and even invite family members, such as grandparents or other relatives, to contribute. This creates an opportunity for loved ones to participate in building a child’s financial future.
The Tax Advantage: Letting Money Grow
One of the primary benefits of a Trump Account is tax-deferred growth.
With some other types of accounts, investment earnings may be subject to taxes along the way. A Trump Account allows investments to grow without annual taxation, allowing the money to continue compounding over many decades.
Eventually, withdrawals will generally be taxable, which is why these accounts are considered tax-deferred, not tax-free.
The advantage comes from allowing the investment growth to continue uninterrupted for potentially 50 or more years.
Keeping Investments Simple
One feature I particularly like about these accounts is the focus on simple, low-cost investments.
Trump Accounts are limited to diversified mutual funds or ETFs with very low annual expenses. This helps prevent high investment fees from reducing long-term growth and encourages a straightforward approach to investing.
What Happens When the Child Turns 18?
When the child reaches adulthood, they take control of the account and become responsible for managing the funds.
Importantly, the purpose of the account does not change. The money remains intended for retirement savings and continues to follow retirement account rules. It effectively becomes an IRA account.
This creates an opportunity for young adults to begin managing and understanding investments early, something many people do not experience until much later in life.
A Potential Future Planning Opportunity
Because these accounts are brand new, there are still many planning strategies that will continue to develop.
One potential opportunity to watch is whether portions of the account could eventually be moved into a Roth account during years when the account owner has lower taxable income, such as during college or early in their career. If future guidance supports this type of strategy, it could create significant long-term tax savings.
However, tax laws change frequently, and I would not make a decision today solely based on a potential future strategy. Instead, consider it an additional planning opportunity to monitor over time.
Should You Open One?
For some families, a Trump Account could be a valuable addition to their financial plan.
If your child qualifies for the government’s initial contribution or your employer offers contributions, it may make sense to open an account simply to capture those benefits.
However, before contributing additional money, make sure your own financial foundation is strong.
Prioritize your own retirement savings, emergency fund, and other important goals first. While helping children build wealth is a wonderful goal, remember that children have options for funding education expenses. There are no loans available to fund your retirement.
Like any financial tool, a Trump Account is not automatically right or wrong. It is simply another option. The key is understanding what the account is designed to accomplish and determining whether it fits into your family’s overall financial plan.
Disclosure: This article is for educational purposes only and is not intended as financial or tax advice. Every financial situation is unique, and you should consult with a qualified professional before making decisions regarding your specific circumstances.
