What Are Trump Accounts? And How Do They Work?

We love it when parents ask the question, “How can I invest in my child’s future?”

That’s music to our ears, because it means you’re already thinking about how you can set your kids up for success and change your family tree.

From setting aside some money each month for Junior’s college fund to opening a custodial account to help Sally save for a down payment on her first home, there are plenty of smart ways to give your kids a head start once they leave the nest.

And now there’s a new option in the mix: Trump Accounts.

When Congress passed the One Big Beautiful Bill Act (OBBBA) last summer, it introduced Trump Accounts—a new investment account for kids with a headline-grabbing promise: a $1,000 deposit for every eligible child born between 2025 and 2028. Naturally, that captured the attention of parents and parents-to-be all around the country.

Whenever the government gets involved, it’s only natural to start asking questions . . . lots of questions. So, what exactly is a Trump Account—and should you use one?

Ramsey Solutions is a paid, non-client promoter of participating pros. 

What Is a Trump Account?

A Trump Account is a new type of tax-advantaged investment account for kids. Any U.S. child under 18 with a valid Social Security number is eligible to establish a Trump Account, which can be opened by a parent or legal guardian who will manage the account on behalf of their child until they turn 18.

And for every child born in the U.S. between January 1, 2025, and December 31, 2028, the Treasury Department will fund these accounts with a one-time $1,000 deposit once they become available after July 4, 2026.¹

Trump Accounts are being pitched as a cross between a traditional IRA and a 529 plan. According to the government, the goal of these Trump Accounts is to build “long-term financial security for millions of children by creating tax-advantaged investment accounts for U.S. citizens under the age of 18.”²

President Donald Trump says, “This is a pro-family initiative that will help millions of Americans harness the strength of our economy to lift up the next generation. And they’ll really be getting a big jump on life.”³

Here’s the thing: A Trump Account might be worth opening if your kid is eligible for the initial $1,000 government contribution. But it’s not a game changer. In fact, you have several more effective ways to invest in your child’s future (we’ll explain why in a minute).

But first, let’s walk through how Trump Accounts work and what the rules really are so you can make the best decision for you and your family.

How Do Trump Accounts Work? (Rules, Limits and Taxes)

We hope you’re somewhere comfortable—because we’ve got a lot of ground to cover on these Trump Accounts! We’ll try to keep things as simple as possible, but it’s important to know the nuts and bolts of how a Trump Account works so you can understand what you’re getting into.

Investments

Trump Accounts are designed for long-term growth while minimizing risk. By law, Trump Accounts may only be invested in broad U.S. stock index funds (like an S&P 500 index fund) that mirror the performance of the U.S. stock market as a whole, don’t use leverage (in other words, they don’t use debt to buy up stocks), and charge no more than 0.10% in annual fees.⁴

In other words, the money in a Trump Account will be invested in the stock market on the child’s behalf through a diversified portfolio of low-cost index funds—most likely an S&P 500 index fund or something similar.

According to the government, the accounts will be managed by the Treasury Department's “designated financial agent” at first, but parents will be able to transfer the accounts to their own brokerage at a later date if they want to.⁵

Contributions

The time between when your child is born and when they turn 18 (what normal folks call childhood) is called the growth period for Trump Accounts, and it ends on December 31 of the year before they turn 18.  

During the growth period, you can contribute up to $5,000 per year in after-tax money into your child’s Trump Account (but it’s not required).⁶ Contributions can come from a bunch of different sources—including family, friends, employers and even the child whose name is on the account (once they start earning income).

That “after-tax” part we mentioned is important. It means you will not get a tax deduction for any contributions you make to your little one’s Trump Account.

You can make contributions to the account until the child turns 18. After that, the account begins to function like a traditional IRA, which means your child can continue to make contributions to the account, but parents and guardians cannot.⁸

Access

During the growth period, the money inside the Trump Account is owned by the child. But an adult—in most cases, a parent or guardian—is authorized to act on the child’s behalf until they reach age 18.

When your child turns 18, the keys to the account get turned over to them (that time will fly by . . . they grow up so fast!).⁹

Withdrawals

Generally, no one can take any money out of a Trump Account until the child turns 18. Then, standard IRA rules for withdrawals apply. That means they can withdraw some of the funds from the account without penalty for certain qualified expenses—which include education expenses, a first-home down payment, or business start-up costs.¹⁰

If your kid wants to use their Trump Account to buy a new car or the latest tech gadget, however, that won’t fly with Uncle Sam—and they’ll likely get hit with a 10% early withdrawal penalty.¹¹

Taxes

Here’s where a Trump Account functions similarly to a traditional IRA: The money inside the account will grow tax-deferred, which means taxes will need to be paid on at least some of the money taken out of the account.

Regardless of what the money is used for, withdrawals from Trump Accounts will likely count as ordinary income and will be taxed at ordinary income tax rates—so your kids should be prepared to pay taxes on some of the funds they plan to withdraw.

But the good news is, only the investment growth will be subject to taxes once those funds are withdrawn. Any after-tax contributions made to the account will not be taxed again when that money is taken out.¹²

Trump Accounts for Kids: Key Features and Details

How Do You Open a Trump Account?

If you think you’re going to wake up on July 5, 2026, with a letter and a $1,000 check from the government for your baby’s Trump Account, think again. You didn’t think the government would make it that easy, did you?

While it’s not automatic, signing up for a Trump Account is a pretty simple process. Here’s what you need to do:   

1. Enroll your child by making an election when you file your taxes.

You can open a Trump Account for your eligible children in two ways: You can enroll them when you file your taxes for the 2025 tax year using the newly created IRS Form 4547.¹³ Or if you want to wait, you can enroll through an online portal that will be available by summer 2026.¹⁴

2. A financial institution of your choice will receive your funds and activate your account.

At first, all Trump Accounts will be created and held with the Treasury Department’s designated financial agent. But at some point, parents or guardians will be able to transfer the full balance of a Trump Account to a brokerage firm of their choice through a simple trustee-to-trustee rollover.

3. Make contributions to your child’s Trump Account (if you want to).

Once a Trump Account is set up, you can decide whether you want to continue investing in the account or simply let the money sit there and grow.

Which begs the question: Should you contribute more to your child’s Trump Account beyond the government’s initial deposit?

Should You Use a Trump Account for Your Child?

Before you put more than the government’s $1,000 into a Trump Account, it’s important to compare it with other ways to invest for your child.

Sure, if you have a baby born between 2025 and 2028, there’s nothing wrong with opening a Trump Account for them. A thousand bucks is a thousand bucks. We’re not going to say no when Uncle Sam goes full Oprah Winfrey and starts giving out money. (It’s not free money, though. The money has to come from somewhere—and in this case, it’s coming from the wallets of taxpayers like you.)

But once that initial deposit hits the Trump Account, we recommend you let the money sit there while you invest for your kid’s future elsewhere. Trump Accounts might seem like a good idea, but the more closely you look at them, the less appealing they become. The truth is, they’re more of a political stunt than a game changer for your kids. Here’s why.  

Trump Accounts lack flexibility.

When you make contributions to a Trump Account, you’re basically trapping money inside an inflexible, unusable account. You and your children won’t be able to use that money for at least 18 years. And when your kids are able to take the money out, they’ll have to pay taxes on any investment growth from the account.¹⁵ Strike one.  

Trump Accounts restrict what you can use them for.

And what if your child wants to use those funds for a reason not “approved” by the federal government? Well, that’s too bad. Based on their age and what they want to use the money for, your kid might get hit with an additional withdrawal penalty for doing so. Strike two.

Trump Accounts limit your investment options.

Plus, you’re not in control of your investments in a Trump Account—the government is. That limits your investment choices and gives you less control over how your hard-earned money is invested. Strike three, you’re out!

Once you understand the limits of Trump Accounts, it’s easier to see why other options often work better.

Trump Accounts vs. Other Ways to Invest for Your Child

Better Ways to Invest for Your Child’s Future

Listen, if you took the same amount of money you were going to sink into a Trump Account and invested it wisely (especially with some help from a financial advisor), you could potentially earn more than you would investing with a Trump Account. On top of that, you’d have more flexibility, greater access and better tax benefits in the process.

Here are several accounts that could serve you and your kids better than a Trump Account: 529 plans and ESAs, UGMA and UTMA accounts, and custodial Roth IRAs.

Saving for College: 529 Plans and ESAs

A 529 plan, for example, lets you save specifically for your kids’ college expenses. The earnings in a 529 plan grow tax-free—and when your child uses those funds for qualified education expenses, withdrawals aren’t subject to any federal income tax. If you use a Trump Account to pay for college, you or your kids will have to pay taxes on the investment earnings you take out.

A Coverdell Education Savings Account (ESA) is another tax-advantaged investment account designed to help pay for qualified education expenses—and that includes elementary, high school and college education. The downside is its low $2,000 annual contribution limit per child.¹⁶ But it comes with some really great tax benefits, like tax-free growth and tax-free withdrawals when those funds are used for education.

Saving for Future Expenses: Custodial Accounts (UGMAs/UTMAs)

If you’re thinking about using a Trump Account to help your kids with a down payment on a home, a future wedding or some other large expense, you’re probably better off using custodial accounts like a Uniform Transfers to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) account.

UGMAs and UTMAs are taxable investment accounts (or brokerage accounts) with no contribution limits. This means that you (and maybe other family members like Grandma and Grandpa) can contribute well beyond the $5,000 annual limit for Trump Accounts.

These accounts also have much more flexibility on what you can invest in, including mutual funds whose goal is to outperform a stock market index.

Unlike a 529 plan, taxes are due every year the account earns income, even if you don’t withdraw any money. But the good news is, the first $1,350 is exempt from taxes—and the next $1,350 is taxed at the child’s lower tax rate before the rest is taxed at the parent’s tax rate.¹⁷ On top of that, your kids can take money out of the account for any reason without a withdrawal penalty.  

Saving for Kids’ Future Retirement: Custodial Roth IRAs

Let’s fast-forward a few years. Your child is now in high school and wants to make a few extra bucks on nights and weekends by babysitting for the neighbors or slinging burgers and fries at their favorite fast-food restaurant. Now that they have an earned income, you can open a custodial Roth IRA on their behalf.

We love custodial Roth IRAs. They give your kids a huge head start on retirement. And get this: They won’t have to pay taxes on the money they withdraw from the account in retirement.

Keep in mind that your child must have an earned income for you to open a custodial Roth IRA for them, and contributions to the account can’t be greater than the income they earned for that year.

Once your child reaches the age of majority (age 18 or 21, depending on the state you live in), control of the account transfers to them and they can continue to put money into it!

Which Account Fits Your Goal?

The Bottom Line: What This Means for Parents

If your child is eligible for a Trump Account and that initial $1,000 deposit, go ahead and claim the thousand bucks. That’s a no-brainer.

If you and your child leave that $1,000 in the account invested in an index fund that mirrors the historical performance of the stock market, they could have around $240,000 in their account by the time they’re 55. Not bad!

But for ongoing investing, you’ll likely get better results—not to mention more flexibility, better tax benefits and a wider range of investment options—by using existing investment accounts like 529 plans, custodial accounts or a custodial Roth IRA (once your child has earned income).

Whatever you do, make sure you’re following Ramsey’s 7 Baby Steps as you prioritize your financial decisions. That means you should be out of debt, have a fully funded emergency fund, and be investing 15% of your gross income for your own retirement first (Baby Steps 1–4). Then you’re ready to start saving for your kids’ college fund and other future expenses (we call this Baby Step 5).

This is a proven plan that has helped millions of Americans get out of debt, build wealth over time, and leave a legacy for their children. Now it’s your turn!

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.