- Those born on or between January 1, 2025 through December 31, 2028 may receive a $1,000 contribution from the U.S. Department of the Treasury to their Trump account.
- Although not identical, the basic rules of a Trump account are most like a traditional IRA.
- When it comes to saving for a child’s education, a 529 plan is probably the better alternative.
Fundamentally, a Trump account is a unique savings vehicle intended on helping eligible children obtain a head start in their savings, whether it be for education, a home, or retirement. Children, before the year they turn 18 and with a Social Security number, are eligible to have an account opened on their behalf. Those who are U.S. citizens and born on or between January 1, 2025 through December 31, 2028 will also receive a $1,000 contribution via Treasury if an election is made to do so. In addition, for children who do not qualify for the $1,000 Treasury payment, some may benefit from employers or charities that are also eligible to make contributions to the accounts. For example, a private donor pledged $6.25 billion to certain accounts in December 2025.
What Is a Trump Account & How Does It Differ From an IRA?
Although not identical, the basic rules are most like a traditional IRA. Withdrawals in the year the account beneficiary turns 18, not allocable to basis, are taxed as ordinary income and may be subject to a 10% early distribution penalty if done before the beneficiary turns 59 ½. The penalty may not apply if the funds are used for qualified expenses, e.g., qualified higher education, first home, etc., similar to the rules of a traditional IRA.
However, Trump accounts also differ in some ways from a traditional IRA. For example, a custodial IRA, which is a traditional IRA that a parent or adult manages for the benefit of a minor, may receive contributions up to $7,500 in 2026 (assuming the child had earned at least as much earned income), whereas contributions to a Trump account are capped at $5,000 annually. An important advantage of a Trump account, however, is that the child does not need to have earned income to have a contribution made into their Trump account, unlike the custodial IRA.
Also, to the Trump account’s advantage, contributions may be made by anyone, including individuals (e.g., parents, grandparents, other family members, family friends, etc.), employers, charitable organizations, and as previously mentioned, the government. An employer’s contribution to an employee’s child’s account is limited to $2,500 and counts toward the maximum $5,000 annual contribution limit. Contributions from charitable organizations and the government do not count toward the annual limit. Note that after tax year 2027 the Trump account contribution limits will be indexed for inflation, thereby increasing annually.
Trump accounts must be invested in low-cost broad U.S. stock exchange-traded funds (ETFs) or mutual funds. They cannot hold cash, money market funds, or sector-specific funds during the “Growth Period,” defined as the period of time before the year the Trump account beneficiary turns 18. These funds are further required to have a max expense ratio of 0.1%.
Insight from Forvis Mazars: Employer contributions to Trump accounts must be made under a “Trump Account Contribution Program,” a separate written plan for the exclusive benefit of their employees. In addition, employers may provide for employees to make pre-tax contributions under a Section 125 cafeteria plan to their dependent’s Trump account. Both contribution avenues count toward the $2,500 employer contribution limit. The employer contributions are not includable as income to the employee.
How Do Trump Accounts Compare to 529 Plans?
The advent of Trump accounts has many people asking how they compare to 529 plans. When it comes to saving for a child’s education, a 529 plan is probably the better alternative.
529 plans are specifically designed for education savings and carry with them benefits that Trump accounts do not. While both vehicles grow tax-deferred, 529 plans provide tax-free withdrawals when used for qualified education expenses whether the beneficiary has attained age 18 or not.
Money cannot be withdrawn from a Trump account before the year the beneficiary turns 18. If money is withdrawn after the year the beneficiary turns 18 for qualified higher education, the amount, not allocable to basis, is taxed as ordinary income although it may not be subject to the additional 10% penalty for a withdrawal before the beneficiary attains age 59 ½.
529 plans allow for larger annual contribution amounts and in many cases can provide state-specific tax advantages, such as state tax deductions or credits, on contributions. If not all the 529 plan funds are eventually used for education, the Secure Act 2.0 created the ability to roll 529 plan assets into a Roth IRA with a lifetime limit of $35,000, thereby allowing the benefits of the plan to carry beyond education.
A Trump account may also be converted into a Roth IRA in the year the beneficiary turns 18 or thereafter. Although this conversion would result in immediate income taxation (on amounts in excess of basis) and Kiddie Tax rules should be considered, it may be a potentially opportunistic time to do so considering the child would likely be in a lower tax bracket than in later years.
In summary, a 529 plan is probably a better plan for education, but Trump accounts still offer long-term saving benefits. The good news is that you don’t have to pick one or the other; you can have both.
Insight from Forvis Mazars: Unlike contributions to 529 plans, contributions made to Trump accounts do not presently qualify for the $19,000 annual gift tax exclusion in 2026. This means that when an individual contributes to a Trump account, they will need to file a gift tax return to report the use of their lifetime estate and gift tax exemption. This can be a burdensome requirement, and many are hopeful for legislation that would consider individual contributions as completed gifts that would qualify for the gift tax annual exclusion.
How Forvis Mazars Can Help
Forvis Mazars Private Client brings a unique perspective in which we offer an Unmatched Client Experience®. Our Private Client team can help provide tax, investment, and financial planning strategies related to Trump accounts, and we can plan for what is to come when the child becomes an adult. There are many different planning strategies this unique account can offer for you and your family. Forvis Mazars Private Client can help identify its potential benefits.
Forvis Mazars Private Client services may include investment advisory services provided by Forvis Mazars Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by Forvis Mazars, LLP. The information contained herein should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies mentioned herein, may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.