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Trump Accounts
Trump Accounts are set to be the best gifting & inheritance tool ever created. I'd be shocked if a future Congress doesn't try to change the rules.
Key points:
➔ Trump Accounts are Traditional IRAs
➔ Traditional IRAs can be converted to Roth IRAs
The combination enables more money at an earlier age than ever possible in a Roth IRA, with a lifetime of future tax-free growth and withdrawals.
A Case Study (Hypothetical)
Assume you deposit $5,000 per year for 18 years, $90,000 of total contributions, earning a hypothetical 7% per year. By 18, the account reaches roughly $182,000.
- Of that $182,000, the $90,000 of contributions is basis; the ~$92,000 of earnings is taxable on conversion. That's roughly a 50/50 pro-rata split.
- Assume the kiddie tax applies (more on this later) and the parents' marginal rate is 35%: roughly $89,300 of the taxable portion is taxed at 35%, a bill of about $31,400.
- The parents gift the $31,400 to cover the tax, and the entire $182,000 lands in the Roth.
- All-in outlay: roughly $122,000 ($90,000 of contributions plus the tax bill). Not something everyone can fund. But for those who can, here's what it does.
That $182,000, fully converted at 18 and left untouched, keeps growing with no required minimum distributions during the owner's lifetime.
At 7%, it reaches roughly $23.7 million by age 90. And if the owner passes at that point, heirs can let it compound in an inherited Roth IRA for another 10 years before emptying the account, arriving at nearly $47 million, all of it income-tax-free, all from $90,000 of contributions and a one-time $31,400 tax bill.
That said, this is under current rules, which are subject to change. So...
This is not tax, legal, or investment advice.
What We Do Know
Trump Accounts were created by the One Big Beautiful Bill Act, signed in July 2025, under new Section 530A of the tax code. But the program just went live on July 4, 2026.
What are they? Simply a traditional IRA for a child, with special rules:
- The account must be opened for a child under 18 with an SSN valid for employment; a parent, legal guardian, or grandparent serves as the "authorized individual" who makes the election and manages the account
- Contributions are capped at $5,000 per year combined from family, friends, and employers (employers limited to $2,500 of that total), and stop after the year before the child turns 18
- $1,000 seed deposit, if the child is a U.S. citizen born between January 1, 2025 and December 31, 2028 and the $1,000 election has been requested (it is not automatic). The seed does not count against the $5,000 yearly limit.
- Additionally philanthropists have pledged their own seed money: Michael and Susan Dell committed $250 apiece for roughly 25 million kids aged 10 and under, and Nicki Minaj pledged $150,000 to $300,000 for her fans' children, etc.
Investments
- Every dollar is invested in a low cost S&P 500 index fund.
- Current default: State Street SPDR Portfolio S&P 500 ETF (SPYM)
- Similar S&P 500 index funds from others are slated to join the lineup too: IVV, VTI, SPTM, and ITOT
Withdrawals/Distribution/Conversion Rules
- Contributions are after-tax; growth is tax-deferred and taxed as ordinary income
- Neither the parent nor the child can touch it until 18!
On January 1 of the year the child turns 18, the special rules fall away. The child assumes full ownership and control, and the account operates under standard traditional IRA rules.
What are those rules? Basically just tax-deferred growth until withdrawn. At said time, withdrawals are taxed. If left to compound for decades, this could mean a high tax bill.
The solution many wealthy families will pursue: Roth conversions. Paying the tax on the gains now allows for tax-free distributions in the future (after decades of compounding). Plus, when heirs eventually inherit the account, the funds can keep growing in an inherited Roth IRA for up to 10 years after the holder's death before they must be fully withdrawn, still tax-free.
Conversion Rules
To move traditional IRA funds into a Roth IRA, you have to pay tax on the earnings.
- As Trump Accounts are currently arranged, deposits are made with after-tax dollars, which become basis and convert tax-free. The earnings are subject to tax when converted. (The federal seed and any employer, charitable, or government deposits don't create basis, so those dollars are taxable too.)
- Each conversion is done in proportion (pro-rata): every dollar converted carries its share of basis and taxable earnings. You can't convert the basis first.
- Not so bad at a child's presumed low tax rate at age 18. But the IRS has a rule for unearned income of dependent children.
The Kiddie Tax
- Generally applies to unearned income of dependents under 19, and to full-time students under 24.
- In 2026: the first $1,350 of unearned income is tax-free, the amount between $1,350 and $2,700 is taxed at the child's rate, and everything above $2,700 is taxed at the parents' rate.
- It could make sense to wait until the kiddie tax no longer applies, then spread conversions across several years at the child's own brackets.
- The trade-off is that waiting lets earnings compound inside the traditional IRA, growing the taxable share of every future conversion. Sometimes paying the parents' rate early beats paying the child's rate on a much bigger number later.
- If the parents' rate won't change, it likely makes sense to convert it all in one year.
- Further the tax bill can simply be gifted. Amounts within the annual gift exclusion ($19,000 per recipient, $38,000 for a married couple) require no gift tax return.
- Best to gift the tax money separately, so the full account balance converts and keeps compounding tax-free.
Additional information and other gifting options below.
Visit https://trumpaccounts.gov/ to download the app and get started.
Until next time, stay the course.
Joe Ward, CFP®, RICP®, TPCP®
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FAFSA Caveats
One advantage: retirement accounts don't count as assets on the FAFSA. A Trump Account, as a traditional or Roth IRA, is not currently counted in the aid formula as an asset, unlike a UTMA account (assessed heavily as a student asset) or even a 529.
The conversion is the exception. The taxable portion lands in the student's AGI, and the FAFSA looks back two tax years. A conversion during the child's age-18 year shows up on the aid application for their junior year of college. Families expecting need-based aid may want to sequence the conversion after the final FAFSA base year, or accept the one-time hit in exchange for starting the Roth clock sooner.
A potential reason to delay the conversion. However, many families implementing these strategies will not qualify for need-based aid anyway.
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Trump Accounts vs. Other Gifting Options
Direct tuition/medical payments - Payments made straight to a school or medical provider on the child's behalf.
- Pros: Unlimited amounts, fully exempt from gift tax, and they don't count against your $19,000 annual exclusion, so you can stack regular gifts on top.
- Cons: The money must go directly to the institution, never to the child. Tuition only for the education side (no room, board, or books), and there's no investment growth component.
Outright gifts - Cash or assets handed directly to the child, up to $19,000 per giver per year without gift tax filing.
- Pros: Simple and immediate, with no accounts to open or rules to track.
- Cons: Zero control once given. The child can spend it on anything, and any investment income it generates lands on their tax return going forward.
529 plans - State-sponsored investment accounts for education, owned by the parent or grandparent with the child as beneficiary.
- Pros: Tax-free growth and withdrawals for qualified education expenses, the owner keeps control, the beneficiary can be swapped to another family member if plans change, and up to $35,000 of leftover funds can be rolled into the beneficiary's Roth IRA under SECURE 2.0.
- Cons: Non-qualified withdrawals trigger income tax plus a 10% penalty on earnings, investment menus are limited, and the Roth rollover comes with strings (a 15-year account age requirement, annual contribution limits, and the child needs earned income).
Coverdell ESAs - Self-directed education savings accounts that predate the 529's rise.
- Pros: Cover both K-12 and college expenses, with far broader investment choice than a 529, including individual stocks.
- Cons: A small $2,000 annual cap, income limits on who can contribute, and the funds generally must be used by age 30.
UTMA/UGMA accounts - Custodial brokerage accounts opened in the child's name, managed by an adult until majority.
- Pros: Hold nearly any asset with no contribution cap, and they're as easy to open as a regular brokerage account.
- Cons: Irrevocable, the child takes full control at 18-21 whether they're ready or not, the assets weigh heavily against financial aid, and investment income can trigger the kiddie tax along the way.
Trusts - A legal entity that holds assets for the child under terms you write, managed by a trustee.
- Pros: Maximum control over timing and conditions (age milestones, spending restrictions, creditor and divorce protection), which no other option on this list offers.
- Cons: Costly to set up and maintain, and retained income inside a trust hits the top 37% bracket at only around $16,000, so the tax drag can be severe without careful planning.
Roth IRA - A retirement account in the child's name, funded with after-tax dollars.
- Pros: Decades of tax-free compounding, and contributions (not earnings) can be withdrawn anytime without tax or penalty.
- Cons: Requires the child to have earned income, and contributions are capped at the lesser of their earnings or the annual IRA limit, which keeps most childhood funding small. This is why the Trump Account rules are so important.
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