26 Jun 2025 How “Trump Accounts” Might Work, And Are They Any Good?

A few weeks ago, I wrote about the G.O.P. tax bill that had recently cleared the House. It contained a provision scheduled to go into effect in 2026 that would create what are called “Trump Accounts” (The Senate bill called them “MAGA Accounts,” but the House bill retitles them). Let’s unpack how these accounts work, then assess their merits.

The most attractive feature of Trump Accounts is also the most short-lived: Any child born from 2025-2028 would have an account automatically opened and funded with $1,000. The only stipulation is that the child’s parents must have Social Security numbers. Children under 8 and those born after 2028 could still open an account, but they wouldn’t get the $1,000. In addition to the contribution from the U.S. Treasury, parents and/or relatives could contribute up to $5,000 per year, adjusted for inflation. Any money in the account gets invested, but as of now, there is only one investment option: A diversified index of U.S. companies (think VTI, which all of our clients are invested in).

Once the child reaches age 18, withdrawals can be taken, but no more than half of the account can be withdrawn before the child turns 25. Withdrawals in the 18-to-25 window are considered “qualified” if used for education, job training, small business expenses, or a first-time home purchase. Any other use is considered non-qualified. The former is taxed at the more favorable long-term capital gains rate; the latter as ordinary income.

Once the child turns 25, the full balance is available, but the same stipulations (qualified/non-qualified) remain. The account must be spent down to $0 before the child turns 31; otherwise, the remaining balance is distributed and taxed as ordinary income..

As you can see, these accounts cobble together some of the features of Roth IRAs, 529s, UTMA/UGMAs, and brokerage accounts, though I wouldn’t say the cobbling is additive.

At first glance, the accounts have some attraction, but the more we learn, the attraction seems limited to the initial $1,000 contribution from the Treasury; Most of what they’re trying to accomplish can be done using existing vehicles. Let’s take a quick look at common goals parents want to help their kids achieve:

Paying for College: Trump Accounts are quite inferior to 529 accounts, the Cadillac of the college savings world: 529s have higher annual contribution limits, can be front-loaded, offer more investment options that allow for better risk management, don’t restrict how much of the money can be accessed, offer tax deferral and tax-free qualified withdrawals, and allow unused funds to be transferred either to siblings or a Roth IRA..

Starting a Business/Buying a House: If you want to help your child start a business or make a down payment on their first home, a better option might be a custodial account, also known as UTMA/UGMAs. Similar to 529s, contribution limits to custodial accounts are higher, more of the account can be accessed before age 25, and investment options are greater. Custodial accounts are by no means perfect–the child gets full access between the age of 18 and 21, and “kiddie taxes” are a concern–but are better suited to helping your child with a major purchase.

Saving for Retirement: Once your under-18 child starts working, making contributions to a custodial Roth IRA up to their earned income (or $7,000, whichever is less) is the best way to start saving for retirement because there are no mandatory distributions, the account grows tax-deferred, withdrawals after 59 1/2 are tax-free, and contributions can be withdrawn earlier without taxes or penalties. If you want to start setting money aside before they start working, a custodial account is better than a Trump Account, mostly because there are no forced distributions, though the child does have full access at an earlier age.

Again, it’s hard to see what hole Trump Accounts fill, despite the intent of wanting to help more kids build wealth from an early age. It kind of reminds of the myRa accounts that President Obama rolled out in 2014. They never gained traction and were discontinued a few years later. Trump Accounts might have a longer life if contributions from the Treasury continue after 2028 but, as currently structured, it’s hard to imagine recommending additional contributions given the other options on the table.

As always, feel free to contact us with questions or to talk about the best way to save for your child’s future goals.

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.