Trump Accounts. The name is stomach-turning. Open one anyway.

53 minutes ago

5 min read

The “Trump Account”, launching on July 4, 2026 as a new types of savings account for kids, is obvious political pandering that also significantly helps the largest publicly traded companies in America, which is, yes, stomach-turning, but also besides the financial point. Created as part of the One Big Beautiful Bill Act (a piece of legislation that cannot, grammatically speaking, be both a bill and an act, but here we are), they are a genuinely useful savings tool for children wrapped inside a political branding exercise. The two things are separable. I encourage you to separate them.

Here is what a Trump Account actually is, and why you may consider opening one, even if you roll your eyes while doing it.

What it is

A Trump Account is a type of traditional IRA established for a child. Any U.S. child under 18 with a Social Security number is eligible. The account is held in the child’s name, with a parent or guardian serving as custodian until the child reaches age 18.

Think of it as a starter IRA — a tax-deferred investment account that a child owns from birth and that no one can touch until they turn eighteen. Investment options are limited to low-cost index mutual funds or ETFs that track broad U.S. equity indices such as the S&P 500, with an expense ratio cap of 0.10 percent and no leverage allowed. (I do have thoughts—strong ones—about what happens to equity markets when the federal government effectively mandates that every American child's savings flow into S&P 500 index funds, a collection of only the 498 of the largest capitalized companies in America, but that digression deserves its own article.)

The free money

For U.S. citizens born between January 1, 2025, and December 31, 2028, the federal government will make a one-time $1,000 pilot program contribution to the Trump Account of each eligible child for whom an election is made. This is a cash gift from the government, and whatever your feelings about the legislation that created it, the math on that $1,000 is worth understanding. Invested in a low-cost S&P 500 index fund at birth and left entirely alone until age 65, it compounds to somewhere in the neighborhood of $88,000 at a 7 percent average annual return. The source of the money does not change what it becomes. (So you understand clearly, the government is taking money raised from US taxpayers—both through the initial $1,000 contributions and by permitting employer deductions for their contributions on behalf of employees—and literally putting it into the SP 500.)

The contribution rules

The total that can be contributed to a Trump Account is $5,000 per year, from all sources combined, indexed for inflation after 2027. There is no earned income requirement for the child. Anyone — a parent, a grandparent, a generous relative — can contribute up to that annual limit on an after-tax basis. The contributions go in after tax and come out tax-free at withdrawal, similar to the treatment of Roth contributions.

The Roth conversion opportunity

Once the beneficiary reaches age 18, families have several options — including a Roth conversion, if appropriate for the former minor’s tax situation. If your child turns eighteen with a Trump Account full of appreciated investments, they can convert that balance to a Roth IRA while they are presumably in the lowest tax bracket they will ever occupy — earning little or nothing as a college student or early-career worker. They pay tax on the conversion at their current low rate, and from that point forward every dollar of growth is tax-free for the rest of their life. The compounding potential of tax-free growth over a fifty-year investment horizon is significant. Done thoughtfully, you could be launching your child into adulthood with tens of thousands of dollars in a Roth IRA that will grow, untouched by taxes, potentially into hundreds of thousands of dollars by retirement.

The employer angle

Employers may choose to create a Trump Account program under the newly created Internal Revenue Code Section 128, which allows employers to voluntarily contribute up to $2,500 annually to an employee’s child’s Trump Account. Worth paying close attention to: an employer may contribute to a Trump Account of the employee or the employee’s dependent up to $2,500 per year (which counts against the $5,000 annual limit) under an employer’s Trump Account contribution program, and the contribution will not count toward the employee’s taxable income.

The fine print

Generally, no withdrawals can be made before age 18. After that point, traditional IRA rules apply — meaning early withdrawals before 59½ are typically taxable and may face a 10 percent penalty, with certain exceptions for education expenses, first-time home purchase up to $10,000, and qualifying medical expenses.
Contributions begin July 5, 2026. The Treasury will administer the initial accounts, with rollovers to financial institutions available after launch. Opening a Trump Account starts with an election process through the IRS — either by filing Form 4547 or using the online tool at trumpaccounts.gov. The details of how to open accounts at outside financial institutions are still being finalized, but the framework is clear enough to begin planning around now.
Because of the Kiddie Tax, withdrawals from Trump Accounts funded with pre-tax dollars could be taxed at the parent’s rate — not the child’s — if the child is under 19, or under 24 and a full-time student whose support comes primarily from the parents. This is the strongest argument for the Roth conversion strategy at 18, before the account transitions to traditional IRA rules and before any distributions trigger that calculation.

Who benefits and who doesn’t

There is a glaringly obvious policy tension to these Trump Accounts. That is the fact that 59 percent of Americans don't have enough savings to cover an unexpected $1,000 emergency expense. For those families, a $1,000 contribution to an account their child cannot access for eighteen years is a theoretical benefit arriving in the middle of a very real present crisis. The same $1,000 directed toward subsidized childcare or paid family leave — policies that would allow parents to actually go to work, stay in the workforce, and fund their own retirements — would do considerably more immediate good for considerably more families. A seed account for a child's retirement is a lovely idea. It is also, for a meaningful portion of the families it purports to help, a long-term solution to a short-term problem that is actively preventing them from building any financial security at all.

That said, for everyone with the means to contribute: the name of this account should not determine whether your child benefits from one. Tax-deferred growth, low-cost index fund investing, a potential Roth conversion at the lowest tax rate of your child’s life, and an employer contribution that never touches your taxable income — these are the mechanics. They work regardless of what we call them.