Introducing the Trump Account (Section 530A Account)

Trump Accounts are going live today, July 4, 2026. Happy Semiquincentennial, America! These account contributions allow up to $5,000 per year for minors, with no earned income requirement. They function like an IRA, with some exceptions. Here, we unpack the usefulness of Trump Accounts for financial planning.

Trump Accounts (TA), as established in the One Big Beautiful Bill Act (OBBBA), have two key features. First, they are a tax-deferred savings tool for minors. Funds can grow tax deferred for many years, allowing savers to get started on tax advantaged growth even earlier. Second, they are (tiny) wealth transfer to US Citizens born between January 1, 2025 and December 31, 2028. Any baby born during that time with US citizenship and a Social Security number will have $1,000 deposited into their TA, courtesy of any US taxpayers not born during that time. Interestingly, the biggest area of contention I have seen has been over the name, and not over the creation of yet another government handout. Perhaps this is because it is one-time in nature and not a large amount of money. The arguments in favor of the program center around getting kids interested in investing and invested in the American Dream and the efficiency of starting to help people early so that the funds have many years to grow. Indeed, a 5% real (inflation adjusted) return over 65 years turns $1,000 into about $24,000. Perhaps more importantly, since kids will have skin in the game, they may take more of an interest in business and the economy. Billionaire Michael Dell is so excited about the program that he and his wife are ponying up $6.25B to give kids ten and under $250 each, as long as they live in zip codes that are not high income. Other individuals have made noises about chipping in as well.

The first question parents of babies born in 2025-2028 must answer is whether to open a Trump Account and to claim the $1,000. That’s easy – YES! It’s free money. The only objection I’ve heard is from people who dislike the President so much that they don’t want an account with his name on it. The easy solution to that is to just call it a Section 530A account. Not quite the same ring to it, but if the President’s name offends you, that’s an easy workaround. By the time your kid is old enough to use this money, Trump will be just another name in the history books.

The second question is how to claim this money? The easiest way is to complete the cleverly named Form 4547 when you prepare your taxes. If your baby was born last year and you missed that form when doing your taxes this year, you can still go to https://trumpaccounts.gov/ and complete the form.

The big question is whether it is a good idea to fund the Trump account for your child. This is complicated and must be weighed against other options. Alternatives include funding a 529 Account, a Coverdell account, a Uniform Gift to Minors Account (UGMA), a trust for the child, or simply putting the money into your own account.

We’ll look at some pros and cons of each of these, and then delve into when each might make sense.

The biggest advantage of a Trump Account (TA) is that it acts like an IRA without requiring earned income for a contribution. Taxes on gains are deferred until balances are withdrawn. If a child has no earned income before age 18, $90,000 can still be contributed to the TA. Even if the child does have earned income, this can be directed to an IRA and an amount up to the lesser of the annual limit or earned income can be contributed to an IRA. Employers can also contribute to a Trump account for employee’s children who qualify, up to an annual limit of $2,500 per employee (not per kid). The child would have no basis in this contribution, so it would be taxable when withdrawn. The total a child can have contributed to a TA is $5,000 per year, regardless of where the money comes from. Trump accounts are restricted until the owner reaches 18 years of age, at which point they become like an IRA – balances are available to be withdrawn, but taxed and penalized if taken before age 59.5, unless a qualifying exception exists. Funds can also be transferred to an IRA at that time, or converted to Roth IRA. One wrinkle with the TA is that a contribution to someone else’s TA is technically a future interest gift, because the money is restricted until the owner turns 18. Unless Congress provides a fix, this does not come off the giver’s annual gift exemption, and would instead be a taxable gift. The lifetime exemption still applies, so it is very unlikely to result in tax, but a gift tax return (Form 709) will need to be filed for the rest of the giver’s life. A workaround is to gift the money to the child directly and then have the child make the TA contribution. One other limitation of the TA is that it can only be invested in US equity indices. There is no flexibility to diversify into international stocks or into bonds, nor can owners pick specialized funds or individual stocks.

Coverdell Education Savings Account (ESA), allow a small amount of money to be placed into an account each year for future education expenses – K-12 or higher education. There are income limitations to contribute, and no contributions may be made after the account holder turns 18. Investment returns are tax-free if the funds are used for educational expenses. All funds must be removed by the time the owner is 30. Because the annual limit is only $2,000, and other restrictions exist, these are more or less obsolete, due to 529 accounts. A 529 account is an education savings account that also provides for tax-free investment returns if used for education. States administer their own plans, but residents are free to participate in any state’s plan they choose. People contributing to these accounts are allowed to frontload five year’s of gift tax exemptions into one year. Limits vary by state, and apply to contributions, not to balances. Any unused amounts can be transferred to another beneficiary. The SECURE Act 2.0 also provides for up to $35,000 of conversions to Roth over one’s lifetime, which reduces the risk of accumulating a large 529 and then the student getting scholarships or not continuing in school and the funds becoming taxable. To convert, the 529 must be opened for at least 15 years, and the funds converted must have been in the account for 5 years. Conversions count toward the annual IRA contribution limit.

A third option is a Uniform Gift to Minors Act (UGMA) account. This is a taxable account, meaning any realized gains are taxable immediately. The account is owned by the child, but the parent, or whoever is named, is the custodian until the child turns 18. There is no limit to what can be contributed. Advantages are that this can be invested in anything the custodian wants (subject to fiduciary responsibility) and that it is taxed to the child, not the contributor (usually a parent.) As a dependent on someone else’s return, a child with no earned income has a $1350 standard deduction, and $1350 in 0% long-term capital gains before kiddie tax rules apply. This means assuming at least $1350 of the gains are long-term, a UGMA can realize up to $2,700 per year in investment returns without any federal income tax. The money is available at any time – no age requirements – for any purpose. One drawback is that the child has full access to the funds at 18. Parents may be wary of giving a teenager a large sum of money with no controls. Another little hassle is that to get the $2,700 annual income tax free (effectively stepping up the basis each year) a tax return must be filed.

A fourth option is a trust account. Parents, grandparents or generous (and wealthy) family friends may desire to set up a trust account for a child. The advantage is that the terms of the trust can be whatever the grantor wants them to be. Funds can be restricted to use, or time-released according to the desire of the grantor. The disadvantages are that a trust costs money to set up and to administer, and that income is taxable at trust tax rates, which are generally higher than individual tax rates.

Finally, parents may consider simply contributing to their own accounts. Educational expenses are uncertain and your child has many years to save for retirement. Parents may want to make sure their own needs are met before funding future needs for their children. Roth IRAs can be available for retirement, or to leave to heirs tax-free (but subject to the estate tax for those fortunate enough to have that problem.) Heirs can let their inherited Roth IRA grow for ten more years before funds need to be withdrawn.

How is a parent to think about these options? It really depends on the goal. If pre-funding education is the priority, starting with the 529 makes sense. Parents may want to be careful about how much they fund, as future costs, other financial aid and whether the child will even go to college are all uncertainties. On the other hand, parents with plenty of funds may relish the thought of dynastic college funding – anything not needed can get passed down to the next generation. If the priority is to get funds to a child for a future Roth IRA conversion, the TA works, but maybe not as well as you might think. As long as the child is a dependent, kiddie tax rules apply. Only $1350 per year can be converted, assuming the child has no other income, before the parent’s highest marginal tax rate kicks in. Since conversion is not possible before age 18, a child who goes to college and works even a little will probably not get to convert at a low tax rate until after graduating college. Depending on their starting salary, there may be limited room in the lower tax brackets at that point. For parents wanting to set aside a large sum of money for kids, and to have control past age 18, a trust account may make sense. Parents would need to consider the cost, and would probably favor investments that have tax deferral built in, such as equity ETFs that don’t have large dividend yields. Finally, for parents who want to give their kids a headstart with the greatest flexibility at the lowest cost, an UGMA is the way to go. By prioritizing tax-efficient investments and then selectively tax-gain harvesting, a prudent parent can not only attain tax-deferred growth, but can also use the standard deduction and 0% long-term capital gains rate to increase the basis in the account by up to $2,700 per year. This number will probably increase with inflation. That’s up to almost $50,000 of gains realized and taxed at 0% by age 18 that won’t be taxed again. Further, if the parent encourages charitable giving, other securities with unrealized gains can be used for the child’s giving, securing a 0% rate on those as well. And securities in the account can continue to grow tax-deferred for decades as long as they are not sold. When they are finally sold, the preferential long-term capital gains rate will apply, unlike TA accounts, which will be taxed as ordinary income.

Parents are blessed with a lot of tools to consider when setting up their children for success financially. The right approach may even be a blend of these tools. For help in formulating a well-thought out plan that incorporates the strengths and weaknesses of each tool, consult a knowledgeable financial planner.

Disclaimers: The views expressed are the views of Jacob Rothman on behalf of Rothman Investment Management, LLC (“RIM”), through the period ending July 4, 2026, unless otherwise specifically indicated and are subject to change at any time based on market and other conditions. No client or prospective client should assume that any such discussion serves as a substitute for personalized advice from RIM. The information herein should not be considered a recommendation to purchase or sell any particular security. The securities and strategies discussed herein are meant to be examples of RIM’s investment approach but do not represent an entire portfolio or the performance of a Fund or Strategy and in aggregate may only represent only a small percentage of the portfolio holdings. It should not be assumed that any of the securities discussed herein were or will prove to be profitable, or that the investment recommendations or decisions made by RIM in the future will be profitable. Further, nothing in this letter should be taken as financial advice. Past performance is not indicative of future results. Therefore, no current or prospective client should assume that future performance of any specific investment, investment strategy or product made reference to directly or indirectly in this letter or indirectly via a link to an unaffiliated third-party website, will be profitable or equal the corresponding indicated performance levels. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio. Historical results for investment indices and/or categories generally may not reflect the deduction of transaction and/or custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical results.