520A "Trump Savings Accounts" for Kids: What Families Should Know

A new savings vehicle is entering the landscape in 2026: Trump Accounts. These accounts are designed to give children a financial head start, and while most financial news outlets have compared them to 529 educational savings accounts, they operate much more like Traditional IRAs.

Below is a basic overview of what families should consider when discussing these accounts.

What Are 520A Trump Accounts?

Trump Accounts (TA) are tax-deferred investment accounts for children under age 18 created as part of the OBBBA legislation.

Quick Facts:

• $5,000 annual contributions limit combined from Direct and Employer Contributions
  • Direct Contributions are made by any individual — the beneficiary themselves, parents, grandparents, friends, etc.
• Qualified General Contributions from sources below are separate from the Annual limit
  • The Pilot Program (discussed later)
  • State and local governments
  • 501(c)(3) organizations
• Contributions can be pre-tax or after-tax, depending on the contribution source
• Contributions can begin on July 4, 2026
• Funds are invested in low-cost index funds
• The accounts are controlled by a parent or guardian until age 18
• Withdrawals are not allowed until age 18
  • Withdrawals of growth and any pre-tax contributions will be taxed as ordinary income, and distributions prior to age 59½ may be subject to penalties unless an exception applies.
• Accounts grow tax-deferred

While qualifying higher education expenses are an exception to the early distribution penalty, any portion that represents gains or pre-tax contributions will still be subject to income tax. This is the main reason why we do not feel that it is fair to compare TAs to 529 plans that offer tax-free growth if used for qualifying education expenses.

Additionally, after-tax contributions to TAs will establish a tax basis that must be tracked, potentially using Form 8606 (or a modified version), just as non-deductible IRA contributions are currently recorded. An important difference between TAs and IRAs is that the child is not required to have earned income to have contributions to a Trump Account, unlike IRAs that do have this prerequisite.

The $1,000 "Seed Money": Who Qualifies?

One of the most discussed features is the government-funded starting deposit.

The following are the current criteria for receiving this deposit:

• U.S. citizens
• Valid Social Security Number
• Born between January 1, 2025, and December 31, 2028

Important nuance:

• Accounts can be opened for any child under the age of 18
• Only those born between January 1, 2025, and December 31, 2028 will receive the $1,000 deposit

Key Planning Considerations

Many account types exist to plan for a child's future. A few of these accounts share similarities and all of them have differences. Here are a few highlights.

• Non-qualified use of either a TA or 529 account results in taxes and penalties. For 529s, federal penalties apply only to the earnings, while TAs may have pre-tax contributions that would also be subject to penalties.
• TAs are intended to save for a child's retirement, and 529s are intended to save for education
• Both TAs and 529 accounts allow for Roth conversions. 529s allow lifetime conversions up to $35,000 tax-free. TAs allow an unlimited conversion amount subject to ordinary income taxes, just like Traditional IRAs.
• Trump Accounts offer more penalty exceptions than 529s, which could provide greater flexibility.
• Uniform Transfer to Minors Act (UTMA) accounts allow the most flexibility, but lack the tax-deferred growth
• UTMAs enjoy potentially more favorable capital gains tax treatment
• UTMAs can be used at any age if the use is for the benefit of the child

Final Thoughts

Trump Accounts introduce a new way to think about saving for the next generation. They expand the conversation beyond education and toward broader financial optionality (without the income rules of IRAs), but with tradeoffs in tax efficiency and added complexity.

As with most planning decisions, the right answer depends less on the account itself and more on how it fits into your overall strategy. The greatest impact continues to be made by how early we start saving for our goals. If you have any questions about how to save for your children or grandchildren's futures, call us. We are here to help you make these decisions.