These accounts offer tax-deferred growth, meaning dividends, interest, and capital gains are not taxed annually.
Upon withdrawal, after-tax contributions come out tax-free, while employer, government, and charitable contributions—as well as all investment earnings—are taxed as ordinary income. Beneficiaries (or the individuals managing the account on their behalf) will most likely be responsible for tracking after-tax basis using IRS Form 8606.
Upon withdrawal, Trump Accounts follow the same tax rules as traditional IRAs with basis: each distribution is treated as part return of basis (tax-free) and part pre-tax (taxable as ordinary income). The tax-free portion is calculated on a pro-rata basis depending on the ratio of after-tax contributions to total account value. Additionally, withdrawals are generally prohibited before the year the child turns 18.
Since Trump Accounts are tax-deferred, there are no kiddie tax implications from age 0–17. If the child decides to convert the account to a Roth IRA or take withdrawals from pre-tax contributions, and the child is age 18–23, is a full-time student, and does not have enough earned income to provide at least half their support, then the conversion or withdrawal could be subject to kiddie tax rules.
Based on current law, individual contributions from parents, grandparents, and others generally do not qualify for the annual gift tax exclusion because they are not considered gifts of present interest. As written, contributions count against the contributor's lifetime gift and estate tax exemption and may require filing a gift tax return. Future guidance could create an exception similar to 529 Plans, but no official announcement has been made.
| Pros | Cons |
|---|---|
| Tax-deferred growth, with no tax implications until withdrawals are taken. | Lack of flexibility compared to other education and custodial savings vehicles. |
| Employer contributions receive favorable tax treatment. | Funds can only be withdrawn penalty-free after age 59½ unless a specific exception applies (same as Traditional IRAs). |
| No earned income required. | Funds may include both pre-tax and after-tax contributions, creating tax tracking complexity. |
| Ability to convert Trump Account funds to a Roth IRA, potentially allowing early low-tax conversion and long-term tax-free growth. | Employer and government contributions, as well as investment earnings, are taxed as ordinary income upon withdrawal. |
| Required Minimum Distributions (RMDs) apply later in life. | |
| Investment options are limited to U.S. equity index funds only. | |
| Withdrawals are generally prohibited before the year the child turns 18. |
Any child under age 18 is eligible for a Trump Account, although only children born between 2025 and 2028 qualify for the $1,000 federal seed contribution. Once the child reaches age 18, the account operates much like a Traditional IRA.
We generally encourage clients to consider opening a Trump Account if they are eligible for the $1,000 federal seed contribution, expect to receive employer contributions, or anticipate contributions from a foundation or other external source.
UGMA/UTMAs: The benefits of custodial (UGMA/UTMA) accounts over Trump Accounts include more favorable capital gains taxation rather than ordinary income rates, along with full investment flexibility and no future RMD requirements. UGMA/UTMA funds also have no withdrawal restrictions, allowing access before age 18 and providing full liquidity for any purpose that benefits the child. While unearned income may face the kiddie tax after the small annual exemption, long-term capital gains generally remain more tax efficient than the ordinary income treatment applied to Trump Account withdrawals.
529s: 529 Plans remain one of the strongest tools for education funding, offering tax-free growth and tax-free withdrawals when used for qualified education expenses. They also provide broader investment options than a Trump Account (though still not unlimited), and many states offer state income tax deductions or credits for contributions. In addition, 529s allow you to change beneficiaries within the family or roll excess funds into a Roth IRA for the beneficiary, giving them flexibility that Trump Accounts do not.
Roth IRAs: Roth IRAs for kids—when they have earned income—can be significantly more tax efficient over the long term, since investment earnings can ultimately be withdrawn completely tax-free when taken as qualified distributions.
The Bottom Line is that while the funds parents contribute to Trump Accounts on behalf of their children may grow to an impressive size, the primary driver of long-term outcomes is the act of consistent saving and investing itself rather than the specific tax characteristics of Trump Accounts.
It's important to think of Trump Accounts as retirement accounts rather than college savings accounts.
In many cases, children whose parents utilize 529 Plans or taxable custodial accounts (UGMA/UTMA) may accumulate similar or greater after-tax wealth while maintaining significantly more flexibility before retirement.
529 Plans come with fees and expenses, and there is a risk they may lose money or underperform.
Please note: Trump Accounts were signed into law on July 4, 2025 as part of the “One Big Beautiful Bill Act.” However, a lot of uncertainty remains around specific details that have yet to be finalized, including IRS final regulations, full tax treatment details, state-level tax treatment, final list of investment options, and account administration mechanics. The information on this page is subject to change.