Trump Accounts: How Do They Work and When to Use Them?

There is a new tool that helps parents invest for their children’s future, referred to as the Trump Account.

Created through federal tax legislation enacted in 2025, Trump Accounts are intended to give children an early introduction to investing. The government may provide the initial deposit, while parents, grandparents, employers, and others can continue adding money over time.

That sounds appealing. But families still need to understand what these accounts do well, where they fall short, and how they fit alongside options such as 529 plans and Roth IRAs.

What Is a Trump Account?

A Trump Account is an investment account owned by a child and managed by a parent or guardian until the child turns 18. It operates under special rules during the child’s early years and eventually functions much like a traditional IRA.

Trump Accounts are available to qualifying children who are U.S. citizens, have Social Security numbers, and are under age 18. However, one of the account’s most publicized features is limited to a smaller group.

Children born between January 1, 2025, and December 31, 2028, may qualify for a one-time $1,000 deposit from the federal government. A parent or guardian must open the account and elect to receive the money. The deposit is not automatic.

Once the account is open, parents, grandparents, friends, and others may contribute. Their combined contributions generally cannot exceed $5,000 per year. These contributions are made with after-tax dollars and are not deductible on the contributor’s tax return.

Employers may also contribute up to $2,500 annually to an employee’s Trump Account or the account of an employee’s dependent. That contribution is not included in the employee’s taxable income, but it counts toward the account’s overall $5,000 annual limit.

How Is the Money Invested?

Trump Accounts do not offer unlimited investment choices. During the child’s growth period, the money must be invested in qualifying mutual funds or exchange-traded funds that follow the S&P 500 or another broad index made up primarily of American companies.

That restriction is not necessarily a weakness. It keeps the account focused on diversified, long-term investing rather than individual stocks, cryptocurrency, or other speculative assets. The child receives exposure to the stock market without requiring the parent to assemble and manage a complicated portfolio.

Of course, stock market investing always involves risk. The account’s value will rise and fall, and its growth is not guaranteed. But a young child has time for significant compounding. Even a relatively small amount can grow significantly when it remains invested for decades.

What Happens When the Child Turns 18?

You generally can’t withdraw the money before January 1 of the year the child turns 18. After that, the account is treated much like a traditional IRA.

This means the child gains control of the account, but the money does not suddenly become tax-free cash. Withdrawals may be taxable, and money taken out before age 59½ may face a 10% early-withdrawal penalty.

There are exceptions. For example, traditional IRA rules may allow penalty-free withdrawals for qualified higher-education expenses or as much as $10,000 toward a qualifying first-home purchase. But avoiding the penalty does not necessarily eliminate the income tax owed on the taxable portion of the withdrawal.

Think of the account as a long-term investment account with some opportunities for earlier use, not as a general savings account for expenses at age 18.

When Does a Trump Account Make Sense?

If your child qualifies for the government’s $1,000 deposit, opening an account is an easy decision. Claim the money and let it start growing. The same is true if your employer offers a Trump Account contribution. Do not walk away from available employer money.

The decision gets less clear when you consider your own contributions.

If your primary goal is to pay for education, a 529 plan may still be the better tool. Qualified 529 withdrawals are tax-free, while Trump Account withdrawals used for education may still create an income-tax bill. Some states also provide tax benefits for 529 contributions.

A Roth IRA can offer tax-free growth and greater long-term tax benefits, but a child must have earned income to contribute. Trump Accounts do not require the child to have a job during the childhood growth period.

Ultimately, a Trump Account should complement your financial plan, not compete with more urgent priorities. Before contributing beyond the government’s $1,000, check the 8 Money Milestones.

Trump Accounts provide another way to practice thoughtful, forward-looking stewardship. The goal is not simply to open one because it is new. The goal is to use the right financial tool for the right purpose and to give your child a strong financial foundation without weakening your own.