Trump Accounts: What Parents and Grandparents Need to Know
How Trump Accounts work, how they compare to 529 plans, and whether one makes sense for your family's savings strategy.
A new kind of account for children became available this month. Trump Accounts, created under the One Big Beautiful Bill Act, opened for contributions on July 4 — and for many families, the first question isn't how they work, but whether they're worth adding to a savings plan that may already include a 529 plan or a custodial account.
The short answer is that it depends on what you're already doing and what you're trying to accomplish. Here's the framework we're using with clients.
What a Trump Account Actually Is
A Trump Account is a new type of individual retirement account established on behalf of a child, generally by a parent or guardian. The “growth period” runs from the day the account is established through December 31 of the year before the child turns 18, at which point it converts automatically to a standard traditional IRA. During the growth period, contributions must be made in cash, and investments are restricted to low-cost mutual funds or ETFs tracking a primarily U.S. stock index, with expense ratios capped at 0.10% and no use of leverage. Distributions during the growth period are prohibited except in three narrow cases: correcting an excess contribution, a rollover to another Trump Account or to an ABLE account, or the child's death. Eligible children born 2025 through 2028 also receive a one-time $1,000 federal contribution if a parent or guardian elects it — separate from, and not counted against, the annual contribution limit.
How Much Can Go In
Contributions from individuals — parents, grandparents, the child, anyone — are capped at a combined $5,000 per child for 2026 and 2027, after which the limit is indexed for inflation. There's no requirement that the child have earned income, unlike a traditional IRA. Employers can add up to $2,500 per year toward Trump Account contributions — that cap applies per employee, in the aggregate, not per child, so an employee with two eligible children doesn't get $2,500 for each one. Employer contributions count against the same $5,000 combined limit; contributions from nonprofits and governments don't count against the cap at all. Individual contributions are made with after-tax dollars and are not deductible. Because the $5,000 cap is shared across everyone contributing to a given child's account, it's worth checking who else is contributing before writing a check late in the year — excess contributions carry a 6% excise tax, assessed annually until corrected.
How It Compares to a 529 Plan
For education-specific saving, a 529 plan still has real advantages: a state income tax deduction in many states, the ability to front-load several years of annual exclusion gifts at once, and tax-free withdrawals for qualified education expenses — available whenever the expense comes up, not just after age 18. A Trump Account doesn't offer any of that access; funds are essentially locked up for the entire growth period, with no provision to tap the account early for tuition or anything else. What it does offer is flexibility on the back end — the money isn't restricted to education, and once the account converts, it functions as a traditional IRA your child controls. For most families, a Trump Account looks like a complement to a 529 plan, not a replacement for one.
The Tax Treatment on the Way Out Is Complicated
Once the growth period ends, the Trump Account converts to a traditional IRA and follows standard IRA distribution rules — including the 10% early withdrawal penalty on distributions taken before age 59½, subject to the usual IRA exceptions such as qualified higher education expenses or a first-time home purchase. The nuance worth understanding now is what's taxable when the money eventually comes out: only contributions made out-of-pocket by individuals create basis that returns tax-free. The government's $1,000 seed contribution and any employer contributions do not create basis — they, along with all investment earnings, will be fully taxable on withdrawal. A heavily employer- or government-funded account can end up mostly taxable later, even though it felt like “free money” going in.
Should You Open One?
The IRS has also confirmed that individual contributions to a Trump Account are treated as completed gifts eligible for the standard annual gift tax exclusion — recent guidance that removed a paperwork concern that had worried some families and grandparents about needing to file a gift tax return. Combined with the lack of an earned-income requirement, that makes a Trump Account a simple way for grandparents in particular to gift toward a grandchild's future. The right call still depends on your family's priorities — education funding, general wealth transfer, or both — and how a Trump Account fits alongside what you're already doing. One more thing worth flagging: state tax treatment is still being worked out in a number of states, so don't assume your state automatically mirrors the federal tax deferral.
The Windward Approach
Because Windward looks at family wealth transfer as a coordinated picture rather than a collection of separate accounts, we're modeling Trump Accounts alongside 529 plans and other gifting strategies for the families who ask about them — not treating them as a stand-alone decision.
If you have children or grandchildren and are weighing whether to open one, it's worth a conversation.
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