A new federal savings account for children launched in the middle of 2026, and we’ve already fielded a handful of questions from clients about whether it’s worth opening one.
The short answer: it depends on what you’re already doing. Here’s how to think about it.
Trump Accounts are a new tax-deferred savings account for children under 18, created under the One Big Beautiful Bill Act, with contributions capped at $5,000 per child per year.
For families already making steady progress toward education savings, a Trump Account is generally better viewed as a supplement than a substitute — the tax benefits favor education savings first. Where it earns a real place in the plan is as a long-horizon savings vehicle that isn’t tied specifically to education: something grandparents can contribute to, or a way to bank the federal seed deposit and let decades of tax-deferred growth do the work.
What Is a Trump Account?
A Trump Account is a new type of individual retirement account created for children under 18 who have a Social Security number. Money inside the account grows tax-deferred, meaning your child won’t owe tax on investment gains year to year, though the contributions themselves aren’t tax-deductible.
A few practical details worth knowing:
- Contribution limits. Individuals — parents, grandparents, family friends — can contribute up to $5,000 per child per year. Employers can also contribute, up to $2,500 annually, which counts toward that same $5,000 cap.
- The federal seed deposit. Children born between January 1, 2025, and December 31, 2028, who are U.S. citizens are eligible for a one-time $1,000 deposit from the federal government, which doesn’t count against the annual contribution limit.
- How to open one. Parents or guardians can open an account through the IRS enrollment process (currently via Form 4547 or trumpaccounts.gov, though the mechanics may be updated as the program matures). There’s no income requirement to open or contribute.
- Why the tax deferral matters. Because these accounts can remain invested for decades before retirement withdrawals begin, even relatively modest early contributions have unusually long compounding periods.
- What happens at 18. The account converts to standard IRA rules once the child turns 18 — further contributions then generally require the child to have earned income, and the money effectively becomes retirement savings rather than a general-purpose fund. This one conversion point shapes most of the comparisons below, so it’s worth keeping in mind as you read on.
Trump Account, 529, or Custodial Account? A Quick Reference
| What’s Your Goal? | Best Fit |
|---|---|
| Fund college or other qualified education expenses | 529 plan |
| Give my child a head start on retirement with decades of compounding | Trump Account |
| Open a flexible savings account for any future goal | Parent-owned brokerage account |
| Create an irrevocable gift the child controls at adulthood | Uniform Transfers to Minor Act Account (UTMA) or Uniform Gifts to Minor Act Account (UGMA) |
Trump Accounts vs. 529 Plans: The Real Tradeoff
A family expecting to spend every dollar on college generally gives up meaningful tax benefits by funding a Trump Account before maxing out their 529 contributions. Illinois residents who contribute to an Illinois-sponsored 529 plan, such as Bright Start, can deduct up to $10,000 in contributions from state taxable income ($20,000 for joint filers), and qualified withdrawals — tuition, books, certain room and board — come out entirely tax-free at the federal level. A Trump Account offers neither the state deduction nor tax-free withdrawals; the money is taxed depending on how and when it’s withdrawn.
Where a Trump Account has the edge is flexibility. A 529 is earmarked for education, and non-qualified withdrawals trigger tax and a penalty on the earnings portion. A Trump Account carries no such restriction on what the money is eventually used for once the child reaches adulthood.
Trump Accounts vs. UTMA/UGMA Accounts: Who Should Control the Money, and When
A custodial account under the Uniform Transfers to Minors Act or Uniform Gifts to Minors Act gives a child full, unrestricted access to the funds the moment they reach the age of majority in their state — often 18 — regardless of whether they’re ready to manage that money. A Trump Account, by contrast, converts to IRA rules at 18, which naturally limits access and use. Parents who worry about an 18-year-old suddenly controlling a six-figure investment account may prefer the structural guardrails built into a Trump Account; parents who want the child to have full discretion over the funds, for any purpose, may prefer a custodial account instead.
One financial aid wrinkle is still unsettled: custodial accounts are generally counted as a student asset on the FAFSA, which typically has a bigger impact on aid eligibility than a parent-owned asset. How Trump Accounts will be treated for FAFSA purposes hasn’t been finalized. Families who expect to rely heavily on need-based financial aid should avoid making planning decisions based on assumed FAFSA treatment until federal guidance is finalized.
Who Should Consider Opening One
A Trump Account may make sense if:
- Your child qualifies for the $1,000 federal seed deposit.
- You’re already funding a 529 at a level you’re comfortable with for education costs.
- You’re looking for a way to bank decades of tax-deferred compounding before the child even enters the workforce.
- Grandparents or other family members want an additional way to contribute to the child’s future without earmarking the money for school specifically.
It may not be your first priority if:
- You haven’t yet maxed out your own retirement contributions. Most families are better served funding their own 401(k) or IRA before opening a new account for a child — you can’t borrow money for your own retirement, but there are other ways to fund a young adult’s future.
- College is the primary savings goal and your 529 isn’t yet fully funded for that purpose.
- You haven’t built an emergency fund or aren’t otherwise on solid financial footing.
The Real Decision
The question isn’t whether a Trump Account is “better” than a 529 or a custodial account — they’re built for different purposes. The real decision is which goal you’re solving for first, and whether adding another account genuinely improves your family’s overall plan or simply spreads your savings across more accounts without moving you closer to your actual goals.
If you’d like help thinking through how a Trump Account fits into your family’s broader financial and tax picture, Ahlbeck & Cook can walk through the tradeoffs with you. Contact us to set up a time to talk.
