Trump Accounts: Pros and Cons
“Let us work as if success depends on us alone, but with the heartfelt convictions that we are doing nothing and God everything.” – St. Ignatius of Loyola
Starting July 4, 2026, all U.S. children under the age of 18 are eligible to open a “Trump Account.” These accounts must be established by a parent or legal guardian who will manage them until the child turns 18. These accounts have their own rules, regulations, and requirements along with benefits and drawbacks. Let’s take some time to dive into them. Maybe they make sense for someone in your life.
What Are They?
A Trump Account is a savings account for minors that is invested in a S&P fund(s). The accounts must be opened by a parent or legal guardian and will grow free of tax (like an IRA) until the money is distributed from the account. Kids born between January 1, 2025, and December 31, 2028, will receive $1,000 from the federal government to open the account. All other children under the age of 18 can still open an account, but their parents or legal guardians will be responsible for funding the account.
Contributions
Each account is allowed to have up to $5,000 deposited into it per year. This money can come from anyone; however, the total cannot exceed $5,000, so ideally people who want to contribute should work together to avoid needing to remove money from the account. Employers are able to contribute up to $2,500 for each Trump account for the children of their workers. These contributions are tax deductible for the employer. If they choose, they can offer a salary reduction program so employees can make pre-tax contributions. Both the employer and employee contributions count toward the $5,000 annual minimum.
Investments
According to Vanguard, these funds must be invested in “certain eligible investments, which are generally low-cost stock index mutual funds or ETFs (Exchange Traded Funds) whose underlying securities are composed predominantly of U.S.-based companies.” From what I can find, we do not know exactly which investments will be allowed. I believe it will look like 401(k) investment choices where you can select from a few pre-approved investment options.
Taxes
There are no taxes on these accounts until the money is withdrawn from them. Once the child turns 18, the account is turned over to her with most of the same rules as a traditional IRA. Certain qualified expenses like education, a first-time home purchase, or starting a business will not have tax penalties applied, but any growth or pre-tax contributions into the account will be taxed at ordinary income rates when the funds are withdrawn.
Contributions into the account, unless made through a salary reduction program, are not tax deductible. Those contributions will not be taxed as long as they are distributed after 59 ½ years old or for a qualified expense.
Distributions
No withdrawals are allowed from these accounts until the child turns 18. As noted above, at age 18, the account becomes the child’s, and she is free to do with it what she likes. If she decides to make a non-qualified distribution before the age of 59 ½ years old, she will owe a 10% penalty and income tax. At 59 ½ 一 just like IRAs and other retirement accounts 一 she is able to take money out without penalty, but income tax will still be owed on the growth and pre-tax contributions.
Next Steps
As with all accounts, there are benefits and drawbacks to the Trump Accounts, and it is prudent to speak with a professional who understands your financial picture before deciding what is best for you.
Similar to employer matching money in a 401(k) plan, free money tends to always be good money. So for most people with a child born between January 1, 2025 and December 31, 2028, it will make sense to open the accounts simply to get the $1,000. In the same way, if your employer is offering to contribute to the accounts, it would make sense to open them for those contributions.
On the other hand, the investment options are limited, which means you have less control over how the money is invested and what companies you are supporting with those investments (see my latest article on Catholic Investing for more thoughts on this). You are also not able to touch the money until the child turns 18 and even after that there could be a 10% penalty depending on what she wants to use the funds for.
The next question becomes: are you comfortable with an 18-year-old having that much money in an account in her name? If she gets $1,000 from the government and $5,000 per year every year for 18 years, that equals $91,000 without investment growth. According to the Trump Account website, if you contribute $5,000 per year with average S&P growth factored in, the account could be worth $271,000 at age 18. If you contribute $250 per year, it could be worth $19,000 at age 18. This may be a lot of money for her to have control of at that age, even with the restriction of a 10% penalty to access it in most cases.
On the other hand, it is a great lesson in investing and saving. If the account is used to teach financial literacy and investment strategies, she very well could be mature enough to handle an account of that size at 18 years old.
There are other savings account options for minors that may be worth considering either instead of or in tandem with these accounts. As always, what is best for you and your family may not be what is best for everyone else. Take the time to inform yourself. Always remember to ask God to lead the way as you make all decisions 一 even financial ones 一 and trust that He is guiding you in all things.
Erica Mathews is a CERTIFIED FINANCIAL PLANNER™ Professional with Financial Counseling Associates, a family-owned financial planning and investment management firm. She helps relieve financial stress with organization, automation and a plan, helping others manage their finances so they can live as God is calling them to. She lives in Colorado with her husband and four kids; they love CrossFit, rock climbing, gardening, and exploring. Erica’s email is erica@fca-inc.com.