A new savings option for children is now available—but before opening an account, parents should understand how it works and whether it fits their family’s financial plan.
In our conversations with families, one question comes up repeatedly: “What is the best way to start saving for my child?”
The answer depends on the goal. A 529 plan may be appropriate for education, while a custodial account offers more flexibility. Now families have another option to consider: the Trump Account.
What Is a Trump Account?
A Trump Account is a new tax-advantaged investment account established for a child under age 18 who has a valid Social Security number.
Parents, relatives, friends and employers may contribute to the account. For 2026, most combined contributions are limited to $5,000 per child. Employer contributions may be as much as $2,500, but generally count toward that same annual limit.
Contributions from individuals are generally made with after-tax money, so parents should not assume they will receive an immediate income-tax deduction.
Who Can Receive the $1,000 Government Contribution?
Children born from January 1, 2025, through December 31, 2028, may qualify for a one-time $1,000 federal contribution.
However, the payment is not automatic. A parent or other authorized individual must make the required election, generally using IRS Form 4547, and activate the account.
This is an important detail. Families should not assume that merely having an eligible child means the money has already been deposited.
How Is the Money Invested?
While the child is under 18, the account is generally limited to qualifying low-cost mutual funds or ETFs that track indexes composed primarily of U.S. companies.
The money is intended for long-term growth. Withdrawals are generally restricted before age 18, and after the growth period the account is generally treated under traditional IRA rules. A taxable withdrawal may also be subject to an additional 10% tax unless an exception applies.
Is It Better Than a 529 Plan?
Not necessarily. The two accounts serve different purposes.
A 529 plan is primarily designed for qualified education expenses and may offer tax-free qualified withdrawals. A Trump Account is structured more like a long-term retirement account for the child.
In practice, the question should not be, “Which account is better?” It should be:
“What is this money intended to pay for, and when will my child need it?”
Some families may benefit from using both, rather than replacing one account with the other.
Our Practical Advice
Before contributing a large amount, consider three things:
- Whether you are already saving enough for your own retirement
- Whether the child may need the money before age 18
- Whether a 529 plan or another account better matches your purpose
Starting early can be valuable, but the account type matters just as much as the amount contributed. A new tax-advantaged account should be evaluated as part of the family’s overall financial and tax plan—not simply opened because it is new.
For help understanding how this account may fit with your family’s tax planning, contact WiseBeing Tax & Accounting.
This article provides general information and does not constitute individualized tax, legal or investment advice.
Official source: IRS – Working Families Tax Cuts and Trump Accounts and IRS explanation of Trump Accounts