There are different savings options to help pay for a child’s future financial needs. Each saving option has its own advantages and disadvantages. The newest of these savings options are Trump Accounts which are detailed in Internal Revenue Code Section 530A. Trump Accounts were enacted into law as part of the Big Beautiful Bill Act of 2025 and started July 5, 2026. According to the Treasury Department, so far during 2026 parents and others have signed up for more than seven million Trump Accounts. The accounts have taken in contributions about $1.5 billion with a portion of that coming from the US government’s “seed” contribution of $1,000 for any child born between January 1,2025 and December 31,2028.
The question for parents and guardians of minor children is: Should they continue to contribute to Trump Accounts beyond the free money contributed by the US Government, charities and some employers? Parents and guardians can contribute up to $5,000 a year per child until the child becomes 18. This column discusses Trump Accounts in more detail and will also compare Trump Accounts to 529 College Educational Savings (ESA) plans.
Trump Accounts Basics
A child’s (younger than 18) Trump Account can receive contributions of up to $5,000 per year in addition to the one-time federal government automatic “seed” $1,000 contribution (only for children born between January 1,2025 and December 31, 2028) and from certain charitable organizations and employers. The $5,000 cap applies to funds contributions to accounts made by individuals (parents and grandparents) and employers.
Currently, Trump Account funds are invested in the State Street SPDR S&P 500 ETF. At some point in the near future Trump Account investors will be allowed access to four other low-fee index funds. Currently, Trump Accounts are managed solely by the Bank of New York Mellon and Robinhood Markets. However, in the future they will be transferable to other qualified custodians.
When Does the Child Have Access to Trump Account Funds?
When money is contributed to a Trump Account, the contributions and accrued earnings are tied up until the child becomes age 18. Effective January 1 of the year the child becomes age 18, no more contributions can made to a Trump Account. Trump Account ownership transfers to the child upon the child’s 18th birthday and subject to withdrawal rules identical to traditional IRA withdrawal rules. Among the withdrawal rules from a Trump Account that are like traditional IRA withdrawal rules are that withdrawals are subject to federal and state income taxes and a 10 percent early withdrawal penalty if funds are withdrawn before age 59.5.
Starting when the child becomes age 18 (at which time the child becomes officially the Trump Account owner) the child has the option of converting their Trump account to a Roth IRA. Depending on the size of the Trump Account, taxes should be low given the child’s low marginal tax bracket. However, if the child is between age 18 and 23 when the conversion to a Roth IRA is performed, the “kiddie tax” rules could apply. “Kiddie tax” rules mean that the taxes due on conversion could be determined based on the parents’ marginal (higher) tax bracket. One way to avoid or minimize the “kiddie tax” is for the child to perform a Roth IRA conversion over a period of time. Another way to avoid the “kiddie tax” entirely is for the child to wait until the child is 24 years old at which time the “kiddie tax” rules no longer apply.
What Happens When the Trump Account Owner (the Child) Turns 18
A child who was given a Trump Account and contributions were made on behalf of that child, turns 18 the child officially owns the account as of January 1st of the year the child turns 18). If the child wants to empty the account in order to buy a Ferrari, that is allowed. No one – including the child’s parents – can stop the child from cashing out the child’s Trump Account. However, federal and state income taxes will be due in addition to a 10 percent IRS early withdrawal penalty. Parents are to be reminded of this scenario during the years they are adding contributions to their child’s Trump Account.
Avoiding the “Kiddie Tax” Resulting from Roth Conversions on Trump Accounts
Some parents of teenagers are contributing to Trump Accounts of their children age 13 to17 in order to convert the accounts to Roth IRAs when their child turns 18. But parents need to be careful. The conversion amount will be partly or fully taxable. If the taxable amount exceeds a threshold of $2,700 during 2026, then any amount above that threshold will be taxable at the parents’ tax rate. This is because of the federal “kiddie tax”.
One way to avoid the “kiddie tax” when converting the Trump Account to a Roth IRA is for the child to wait until they are age 24 at which time the “kiddie tax” no longer applies. Another way to avoid paying taxes is for the child to wait until he or she starts working for an employer who offers a traditional qualified retirement plan (for example a 401(k)-retirement plan) that accepts direct rollovers. The portion of the Trump Account that consists of before-taxed money, including the automatic) $1,000 federal government “seed” contributions (for children born between January 1,2025 and December 31, 2028) and all accrued earnings in the Trump Account can be directly rolled over tax to the qualified retirement account. Any after-taxed money in the Trump Account including parent contributions can be directly rolled over tax-free to a Roth IRA. Both transfers are income tax-free as well as reduce the complexity associated with converting a Trump Account to a Roth IRA.
Another Challenge Associated with Trump Account Ownership: Tracking Account Cost Basis
Contributions to Trump Accounts by the federal government (the $1,000 “seed” contribution for children born between January 1,2025 and December 31,2028), certain charities and employers are made with before-taxed dollars. However, funds contributed by parents or other family members will be made with after-taxed dollars. This will complicate the computation of federal and state tax liabilities on Trump Account withdrawals because payouts of the after-tax funds are not taxable and must be prorated. The accrued earnings in a Trump Account are also fully taxable when withdrawn. The following example helps illustrate:
When Steven becomes 18, his Trump Account has grown to $80,000. About $25,000 is from the federal government $1,000 “seed” contribution and accrued earnings. The other $55,000 is from contributions made by Steven’s parents and grandparents.
Whenever Steven withdraws funds from his Trump Account each payout will need to include a tax-free portion of the $55,000. Trump Account custodians will have records of before-taxed and after-taxed contributions of Trump accounts on IRS Form 5498-TA (Trump Account Contribution Information). The following is a draft version of the 2026 Form 5498-TA. If records are lost or contain errors (which can happen), then the Trump Account owner could pay income tax twice on after-tax Trump Account contributions. The following is a Treasury Department draft version of the 2026 Form 5498-TA:
Note Form 1098-TA Box 3 (“basis” or investment in the contract). Each Trump Account owner (each child) must be issued annually a Form 1098-TA.
Trump Accounts Versus 529 Education Savings Accounts
Under current federal law, 529 education savings accounts (ESAs) are more appropriate than Trump Accounts for parents whose primary saving goal is to pay for their children’s future college or vocational training expenses. All 50 states and the District of Columbia have state-sponsored ESAs. Contributions to a state’s ESA are not eligible for any federal tax deduction or credit. However, several states offer state income tax credits or state income tax deductions for state residents who contribute to their state’s 529 ESA plan.
Like money invested in a Trump Accounts, funds in 529 ESA plans grow tax deferred. But unlike Trump Accounts, money can be withdrawn income-tax free from an ESA plan in order to pay college or vocational school tuition, books, room and board and required equipment such as laptop computers. If certain conditions are met, up to $35,000 unused 529 ESA plan funds can be rolled over tax-free to a Roth IRA.
In contrast, withdrawals from Trump Accounts to pay for college or vocational school expenses are at least partially taxable (see previous section). Nevertheless, Trump Account withdrawals are not subject to a 10 percent early withdrawal penalty if used to pay for qualifying educational expenses.
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement! Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over 20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters, and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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