Like many of you, I have been seeing a LOT of information and misinformation on the new “Trump Accounts” signed into law as part of the One Big Beautiful Bill Act. As a Certified Financial Planner™ professional and as a parent of a child born in 2025, I thought I could provide some clarity on what a Trump account is exactly, how to open it, and why you may want one for your child instead of or in addition to established alternatives.
What Is a Trump Account?
A Trump Account is a tax-deferred investment account for children under age 18, structured similarly to a traditional IRA but with special rules during childhood. Accounts are available for all U.S. children under 18 and offer tax-deferred growth on investments.
Think of it as a long-term investing account designed to give kids an early start in the market. In fact, investments are limited to low-cost index funds to ensure broad market exposure. Once the child becomes an adult, the account will be converted into a traditional IRA.
Contributions are limited to $5,000 per year with a notable $1,000 initial seed deposit by the government for children born in 2025-2028.
How to Open a Trump Account (Form 4547)
Opening an account is as simple as filing IRS Form 4547. An authorized adult (parent, guardian, or grandparent) will complete IRS Form 4547 and can submit it with their taxes or separately in the case you have already filed taxes this year. If the child was born in 2025-2028 make sure to elect the $1,000 government contribution. The treasury department will respond with instructions to finalize the account and once the account is opened at a financial institution anyone who would like to can make contributions on behalf of the child until the $5,000 limit has been reached.
Why open a Trump Account?
Why open a Trump account is the question I see getting the most confusion. There are
already alternative ways to start investing for a child through 529 plans or directly gifting
to them in a Uniform Transfer/Gift to Minor Account (UTMA/UGMA). Each type of
account has pros and cons, so I have listed a few major points to consider before
choosing to open one or another.
Pros
Cons
Trump Account
- Tax-deferred Growth
- Early investment exposure
- Free $1,000 from Govt. for eligible children
- Withdrawals are taxable
- Limited investment options
- Funds are locked up until adulthood
- Assets count against financial aid
- Contributions are not tax deductible
- $5,000 contribution limit
529 Plan Account
- Tax-free growth on withdrawals for qualified education
- High contribution limits
- Contributions state tax deductible (in many states)
- Strong estate planning benefits
- Unused funds may be rolled into Roth IRA (up to limit)
- Must be used for education (or face penalties)
- Limited flexibility
UTMA/UGMA
- Funds can be used for anything benefiting the child
- No contribution limits
- Simple to set up
- Investment flexibility
- Earnings taxed annually (kiddie tax rules apply)
- Assets count heavily against financial aid
- Child gains full control at age of majority
Final Thoughts
In my opinion, Trump Accounts are best viewed as a supplemental planning tool, not a replacement for existing strategies. 529 plan accounts remain the most tax-efficient way to save for education, and UTMA/UGMAs provide greater flexibility. For older children who have started working, having them open a Roth IRA provides greater tax-benefits with the same long-term focus of a Trump account. The real value isn’t in choosing a Trump Account over another option, it is in coordinating it as an additional long-term investment layer, especially if the child qualifies for the one-time $1,000 contribution from the government.
