Trump Accounts Are Not Just For Newborns—Here's Why

This year’s Fourth of July celebrated America’s 250th birthday as well as one year since President Trump signed the One Big Beautiful Bill Act into law. A key feature of this legislation was creating the so-called “Trump Accounts”, special tax-advantaged savings account designed to help younger Americans develop wealth. While many are fixated on the $1,000 free seed funding provided by the U.S. government for any child born in 2025, 2026, 2027, and 2028, others may not realize that the Trump Accounts are for more than just newborns.

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What Exactly Are Trump Accounts?

A Trump Account is a new type of tax-advantaged savings account created for children. The Trump Account has two key aspects to it. First, is the initial seed funding. For any child born between January 1, 2025 and December 31, 2028, the child’s parents (or legal guardians) can set up a Trump Account for the child and receive $1,000 seed funding. Second, the Trump Account can receive up to $5,000 a year in additional contributions from family, friends, and even employers. Thus, a child born in 2026 can have up to roughly $91,000 in contributions (not to mention the appreciation of these funds) by the time the child turns 18.

Trump Accounts function like a traditional IRA, where the money grows tax-deferred. Withdrawals are taxed as ordinary income on the appreciation, and on any contributions that weren't made with after-tax family money — including the $1,000 federal seed deposit and employer contributions. Contributions made directly by parents, grandparents, or other individuals, however, come out tax-free, since they were already taxed as after-tax dollars going in. Once the child turns 18, the Trump Account automatically becomes a traditional IRA, and it can be converted to a Roth IRA if the child is willing to pay the taxes on the conversion.

As an IRA, early withdrawals are subject to taxes plus a 10% early-withdrawal penalty. However, after turning 18, the funds can be used for higher education expenses, a first time home purchase, or starting or investing in a small business without paying the 10% early-withdrawal penalty, according to NBC News. If left untouched, it simply becomes a retirement account.

Why Trump Accounts Make Sense Beyond the Free $1,000

For the parents of newborns, opening a Trump Account is a no-brainer. The U.S. government is literally going to provide their child with a free $1,000, and there is no obligation to provide any additional funds beyond this money.

However, a Trump Account is not only for the parents of newborns. Perhaps most notably, the Trump Account is a way for parents (or other relatives and friends) to shelter some of their income by passing it to their children. Before Trump Accounts, children were not able to have a retirement account without also having taxable income to go with it. After Trump Accounts, children can now have $5,000 going toward retirement annually, and these funds can come from sources beyond just their parents.

Even more enticing is the flexibility in how these funds can be used after the child turns 18 (education, first home, small business, or convert to a retirement account). Thus, there are lower implicit costs to creating this account and the funds are not locked in to one specific purpose.

Lastly, should the child turn the Trump Account into a traditional IRA, the funds can they be converted into a Roth IRA, according to CNBC. While the child will have to pay the taxes on the conversion, many 18-year-olds are full-time students and making very little taxable income, lowering the tax costs of a Roth conversion. The conversion could also be conducted over several years to limit tax liabilities. The result would be a retirement account that is growing tax-free for an 18-year-old with many growth years ahead.

Where Families Should Tread Carefully When Considering Trump Accounts

A Trump Account rewards patience and penalizes early use. If a Trump Account user wants to tap into their funds (aside from the special uses), they can do so at anytime. However, if the funds are withdrawn before the taxpayer is 59 ½, they are taxed as ordinary income and assessed a 10% early-withdrawal penalty. Thus, some families may feel it is more advantageous to park the $5,000 annually in a college savings account or a traditional investment account.

Another key concern that families may face is that many key aspects of the Trump Accounts have yet to be fully ironed out. For instance, it is unclear if the presence of a Trump Account may diminish a child’s eligibility for need-based educational aid, like a Pell Grant. Another key concern is that states haven't uniformly decided how they'll tax Trump Accounts. Some states may not follow the federal tax-deferred treatment (known as conforming), meaning a family could face state tax on contributions or annual earnings even though the account grows tax-deferred at the federal level, according to the Washington Post. Families may need to check their state's guidance before assuming the federal tax treatment applies across the board.

Lastly, parents might simply not be in a financial situation to contribute to a Trump Account. While these accounts can yield many great tax advantages, tax planning is less important in the face of funding essential needs.

Trump Accounts Vs. 529s: Complements, Not Competitors

Many parents currently contribute to their child’s 529 plan – a tax-advantaged savings account for education expenses, where contributions grow tax-free and withdrawals are tax-free too, as long as the money goes toward qualified schooling costs. These parents may be looking at a Trump Account to try and determine what might be best for them given this new option.

The simple answer is that these accounts are not substitutes. Instead, they should be viewed as complements. If a family knows that the funds will be used for college, a 529 plan dominates. This is because the funds can be used tax-free toward qualifying higher educational expenses. 529 accounts also allow much larger annual contributions, limited mainly by the annual gift-tax exclusion — $19,000 per individual in 2026 — rather than a hard statutory cap.

However, a Trump Account provides a lot more flexibility. For instance, not all children are going to go to college. Also, many children who go to college might spend far less than what was saved for due to them attending a cheaper school or getting a scholarship. In these situations, the funds contributed to a Trump Account can be applied for another qualified use or converted to a retirement account.

The $1,000 government check may be what got Trump Accounts into the headlines, but it’s the ongoing $5,000 annual contributions, which is open to grandparents, family friends, and employers, that makes these accounts relevant well beyond the $1,000 seed funding. For a family with an eight-year-old or a teenager already saving elsewhere, a Trump Account is not just a consolation prize for missing the federal seed money. Instead, it is another tax-advantaged lever for shifting income to the next generation. While the newborn story may fade from the news cycle after 2028, the planning opportunity will not expire until children turn 18.

By Nathan Goldman, Contributor