Are Trump Accounts Really an “IRA for Children”
While contributions to Trump accounts won’t begin until July 4, 2026, interest is already growing, especially after tech billionaires Michael and Susan Dell pledged an additional $6 billion to fund 25 million of these accounts. As awareness spreads, families are beginning to weigh how Trump accounts stack up against more familiar options like IRAs and 529 plans.
Trump accounts are often compared to IRAs for kids, but experts say the concept itself isn’t new. Sarah Brenner, director of education at Ed Slott and Company, told Yahoo Finance that “It’s been proposed a number of times over the years under different names. So it’s not new,” as quoted in the report.
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How Trump Accounts Work Before and After Age 18
One common misunderstanding is that Trump accounts are limited to education expenses. Brenner clarified that this is not the case, saying, “At age 18, the accounts become available, and you can use them for whatever you want. It’s not limited to education or anything else,” as quoted by Yahoo Finance.
The key restriction comes before then. During the growth period leading up to age 18, the money is completely locked away. There are no qualified distributions and no exceptions for early access.
Trump Accounts vs Traditional IRAs: Key Differences
In many ways, Trump accounts function like traditional IRAs, with one major difference early on. Unlike IRAs, which require earned income to make contributions, Trump accounts have no such requirement. Parents, grandparents, and even employers can contribute on behalf of a child.Once the child turns 18, the account effectively becomes a traditional IRA. Withdrawals are taxable at the account holder’s income tax rate, and if money is taken out before age 59½, a 10% penalty applies to the taxable portion, as per the Yahoo Finance report.
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Trump Accounts vs 529 Plans for Education Savings
As with traditional IRAs, certain exceptions exist to avoid the penalty, including withdrawals for a first home purchase or higher education expenses. Still, the money is primarily intended for retirement, not short-term use.
For families focused on education savings, 529 plans remain a popular choice. These accounts are specifically designed for college costs, and when funds are used for qualified education expenses, investment growth is tax-free.
Trump accounts don’t offer that benefit. According to Brenner, “If you use the money in the 529 for college, then you get all that growth tax-free. With the Trump account, your growth is never going to be tax-free,” as quoted by Yahoo Finance.
States partner with firms such as Fidelity, T. Rowe Price, and Merrill Lynch to offer 529 plans, making them widely accessible, but without the government’s $1,000 starting contribution that comes with Trump accounts.
Coverdell ESAs and Custodial Accounts as Alternatives
Coverdell Education Savings Accounts, which have been available since 1998, are another alternative. Like 529s, ESAs allow earnings to grow tax-free when used for education. They also cover a wider range of expenses, including K-12 costs.
Trump accounts, by contrast, don’t provide tax-free growth but are not restricted to education spending later in life.
Custodial accounts under the UGMA or UTMA rules offer yet another path. These accounts allow anyone to save and invest for a child, with funds transferring to the child’s control between ages 18 and 25, depending on state law.
There are no contribution limits, but the account’s value is considered when applying for college financial aid, and gift tax rules may apply.
FAQs
What is a Trump account?
A Trump account is a new child-focused savings account created under the Working Families Tax Cuts bill and often described as an “IRA for children.”
How much money does the government put into a Trump account?
The government provides a $1,000 seed contribution to each eligible Trump account.