It's official: The One Big, Beautiful Bill, the legislative package formalizing most of President Donald Trump's second-term agenda, became law with the president's signature on July 4.
The bill is not without its controversies, of course. But one provision should be of interest to all current or expecting parents: The establishment of "Trump Accounts," a new type of tax-deferred retirement account for American kids.
The Trump Accounts share some similarities with traditional IRAs and others with 529 college savings accounts. But they also have some quirks that make them totally unique.
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So, should you consider a Trump Account for your children? Let's take a look and compare them to some of the existing options out there.
Only a fool turns down free money
Let's cut to the most important part first. All children born between January 1, 2025, and December 31, 2028, will be eligible for a $1,000 seed payment directly from the U.S. Treasury.
There are no income limitations. The only requirements are that the child is a U.S. citizen with a valid Social Security number and that at least one parent must also have a valid Social Security number.
That's it.
So, if your child was born this year or if you have any new children born through 2028, yes, you should open a Trump Account for them. It costs you nothing to claim the $1,000, and there is no downside.
Even if you have no intention of ever adding another nickel to the account, you should open one to claim the payment. Assuming the account grows at the S&P 500's average compound return of around 10%, that $1,000 deposit would be worth over $490,000 by the time your kid hits retirement age.
As for whether the accounts make sense for your children born prior to 2025, that's a more complex answer. Let's dig into that now.
What is a Trump account for a child born before 2025?
Parents can contribute up to $5,000 per year per kid into a Trump Account. This figure will be indexed to inflation starting in 2027. You can contribute annually up until the year they turn 18. The proceeds must be invested in a low-cost index fund tracking a major index like the S&P 500, and the funds are untouchable until the child turns 18.
The way the bill is written, it looks as if the only option of how to invest the funds in a Trump Account will be a 100% allocation to stocks. It's unclear if Trump Accounts will allow more conservative blended investments in the future.
As an added quirk, employers are allowed to contribute up to $2,500 of the $5,000, and it will not be counted as income for either the parent or the child. So, we could see Trump Accounts offered on the standard menu of employer benefits alongside 401(k) plans or HSAs in the years ahead.
Though they are expected to look and feel like a traditional IRA account, there are a couple important differences.
Trump Accounts vs traditional IRAs
To start, unlike IRAs, Trump Accounts have no earned income requirement. That's a key distinction. In order to invest in an IRA, your child would have to have earned income from work, even if it is something informal like mowing lawns or babysitting. A newborn infant obviously can’t work, so your ability to fund an IRA for a young child is limited.
Unlike IRAs, contributions to a Trump account are not tax deductible. You get no tax break for contributing. Earnings grow tax-free, however. And here's an interesting twist: IRA distributions are taxed as ordinary income, but distributions from Trump Accounts will be taxed as the generally lower long-term capital gains rate of 15% to 20%.
Trump Accounts are designed to be very difficult and expensive to liquidate before the age of 18. But as of now, there are no required minimum distributions (RMDs) once you hit retirement age. This may change, of course, but one potential advantage of a Trump Account over an IRA is the lack of RMD.
Trump Accounts vs other savings accounts
There are a few things to note.
Trump Accounts are not college savings accounts. If you're looking to specifically save for college, then a 529 plan is going to be better tailored to that purpose.
Maxing out your own 401(k) or IRA should also take precedence. It's great to give your kid a head start in life if you have the financial flexibility to do it. But it doesn't make sense to set your son or daughter on the path to early retirement until you’ve adequately provided for your own golden years.
If your child has earned income, then contributing to a Roth IRA is going to be a better option. The Roth IRA contribution limits are higher (currently $7,000) and withdrawals in retirement are completely tax-free.
Finally, the core benefit of the Trump Account – tax-free compounding of returns – is already available in a regular everyday brokerage account. Simply buying and holding an S&P 500 index fund will allow your investment to compound without any taxable gains other than miniscule taxes on dividends paid, and you maintain the flexibility to take the funds out early if you need them.
Should you get a Trump Account for your child?
So, let's return to our original question: Should you consider a Trump Account for your child?
Under the right circumstances, absolutely.
If your child qualifies for the $1,000 gift from Uncle Sam, you should at a bare minimum open an account to take advantage of it.
Beyond that, you should take care of your own retirement planning and your kid's college education planning first. But if you have those largely covered, then adding a Trump Account to the mix can't hurt.
Your son or daughter will thank you when they turn 18.
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