This is a text I got from a friend a few days ago:
“Jake, write an article next week on how the Trump accounts for babies actually stink.”
Sure. Why not?
But let’s take a deeper look into what Trump accounts are before determining if they smell.
As part of the One Big Beautiful Bill Act (OBBA) that was passed last year, the Trump administration introduced a new type of investment account intended to benefit minors. They’re calling it a Trump Account.
Parents and legal guardians can open a Trump Account for any child who is a U.S. citizen and under 18 years old in the year the account is opened. The parent is the custodian of the account until their child turns 18, at which point ownership shifts solely to the child.
You can open a Trump Account by filing a Form 4547 with your taxes this year, or you can use the official Trump Account website to open an account starting on July 5, 2026.
Trump Accounts function similarly to IRAs, but at the same time, are not like IRAs at all.
Unlike IRAs, you do not need earned income to contribute to a Trump Account. Funding a Trump Account also doesn’t impact your ability to contribute to Traditional or Roth IRAs.
Once available, you can contribute up to $5,000 per child per year.
Contributions to the account can be made by parents, family, friends, or even employers. The total amount of combined contributions from all sources is capped at $5,000 per year.
Contributions to Trump Accounts are not tax-deductible. Meaning, you contribute with after-tax dollars, and get no immediate tax benefit for depositing funds.
No withdrawals are allowed from the account until the year the child turns 18. After 18, the account is subject to the same rules as an IRA. Any distributions from the account before age 59 1/2 incur taxes and a 10% penalty.
After 59 1/2, after-tax contributions made to the account are not taxed again. However, any investment gains are subject to ordinary income tax upon withdrawal.
Everywhere I read about Trump Accounts, they’re referred to as “tax-advantaged” investment accounts. Maybe I’m missing something, but I’m failing to see how it’s a “tax-advantaged” account. You pay taxes on your contributions, and you pay ordinary income taxes on your growth. Where is the tax advantage?
Even a regular brokerage account has more tax advantages than a Trump Account because your gains are taxed at favorable capital gains rates, and not ordinary income rates. Not to mention, brokerage accounts don’t have a contribution limit.
Now, the government is giving a one-time $1,000 deposit to each account for all children born between January 1, 2025, and December 31st, 2028.
For those of us who have labored and struggled diligently for years to raise children born before 2025, well, tough luck.
If you do have a newborn or plan on having a baby in the next couple of years, it’s worth it to open a Trump Account simply for the free money. Even if you feel like $1,000 isn’t doing much for your kid right now, one of the main benefits of setting up any type of investment account for your kid’s future is the power of compound interest over a really long time.
If you were to take the free $1,000 in a Trump Account for your newborn and not touch the account until they reach age 65, at a 10% annual rate of return, that $1,000 would grow to be $490,370.
If you maxed out the account with $5,000 in the year they’re born, the balance would grow to be worth $2,451,853. Pretty wild.
Another possible benefit of contributing to a Trump Account is the ability to convert the account to a Traditional or Roth IRA once the child turns 18. You could roll over the account to a Roth IRA, pay tax on the rollover at a relatively low rate early in your career, and allow the money to grow tax-free from then on.
You would have to come up with outside money to pay the taxes on the conversion. Or you could pay the taxes from the withdrawal, but then you’re incurring a 10% penalty on top of the taxes, which reduces the amount left in the Roth to grow tax-free. In that scenario, a brokerage account could still come out ahead in the end, or at least not far enough behind to be worth sacrificing the flexibility a brokerage account offers pre-retirement.
Overall, yeah, I might have to agree with my friend. Trump Accounts do stink a little bit.
Take the free $1,000 deposit if you have an eligible newborn.
But if you’re interested in saving for your kids’ future or retirement, there are other types of accounts that are likely a better option than a Trump Account.
Here’s a link to a previous article about some of those accounts if you’re interested.
Thanks for reading!
Jake Elm, CFP® is a financial advisor at Dentist Advisors. Jake a graduate of Utah Valley University’s nationally ranked Personal Financial Planning program. As a financial advisor at Dentist Advisors, he provides dentists with fiduciary guidance related to investments, debt, savings, taxes, and insurance. Learn more about Jake.