I have some very exciting personal news: I'm going to be an aunt!
My brother told our family this weekend that he and his wife are expecting their first baby next March, and I could not be more excited. I have already started talking about the baby approximately 90% of the time, so naturally, I am going to continue that trend at work.
Enter our topic of the week: Trump Accounts.
If you've heard about these new accounts and wondered what exactly they are, who qualifies, and whether they are something you should consider for a child or grandchild, you're not alone. The rules are new, and there are a few important details worth understanding before opening one.
What Is a Trump Account?
Created by the One, Big, Beautiful Bill Act, Trump Accounts are a new type of traditional IRA designed specifically for children. They are intended to give families a way to invest for a child's long-term financial future. Here's the part that has gotten the most attention: eligible children born between January 1, 2025, and December 31, 2028 may qualify for a one-time $1,000 contribution from the federal government.
There are additional eligibility requirements, including U.S. citizenship and a valid Social Security number, and a parent or other eligible individual must make the appropriate election. So, while the government isn't simply sending every new baby a $1,000 check, there is a significant potential head start for eligible children.
And yes, my future niece or nephew will be born right in the middle of that window. Naturally, I am interested and probably overstepping my auntie responsibilities, but the new parents are busy with all the other first-time parent concerns.
How Do Trump Accounts Work?
A parent, guardian, or other authorized individual can establish a Trump Account for an eligible child who is under age 18 and has a valid Social Security number.
Once established, family members and other individuals can contribute to the account. During the child's growth period, most contributions are subject to a $5,000 annual limit, although certain government, nonprofit, and rollover contributions are treated differently. Employers may also contribute up to $2,500 per year under an employer-sponsored Trump Account program, subject to the overall rules. I’m unsure how many employers are already acting on this, but a quick conversation with HR (is that an oxymoron?) will let you know if yours is! The money is invested rather than simply sitting in a savings account. Investments are limited to certain mutual funds and ETFs that track broad indexes of primarily U.S. companies.
And, perhaps most importantly, the money generally cannot be withdrawn while the child is under 18. That makes this very different from putting money into a regular savings account that a parent might use for summer camp, braces, or a first car.
What Happens at Age 18?
Here's where the account gets especially interesting. A Trump Account is a type of traditional IRA, and once the growth period ends, most of the traditional IRA rules generally apply.
That means the money isn't simply “tax-free money for college” or “free money for a first house.” Withdrawals can generally be subject to income taxes, and withdrawals before age 59½ may also be subject to the 10% additional tax unless an exception applies.
For example, traditional IRA rules provide exceptions to that additional tax for certain qualified higher education expenses and first-time home purchases.
In other words, this account is best thought of as long-term investment money for a child's future, rather than a specialized education savings account.
Trump Account vs. 529: Which Is Better?
This is where I think families should resist the temptation to look for a single “best” account. A 529 plan is specifically designed for education savings and offers tax advantages when used for qualified education expenses. A Trump Account is broader and eventually operates under traditional IRA rules, giving the child more flexibility in how the money may be used later.
For some families, a 529 may make more sense. For others, a Trump Account could be an additional piece of the puzzle. Some may even choose to use both. The right answer depends on the family's goals, cash flow, tax situation, and other financial priorities.
Don't Forget About Your Own Financial Future
As exciting as it is to save for a child, there's one important rule I would encourage parents and grandparents to remember: You can't borrow for retirement.
Before aggressively funding a child's account, make sure your own financial foundation is in good shape. That means having appropriate emergency savings, managing debt, and staying on track with your own retirement savings. A child's financial future is important but so is yours. Trump Accounts are brand new, and the rules surrounding them will continue to develop. For families considering one, understanding how the account works—and how it fits alongside existing tools like 529 plans and retirement accounts—is an important first step.
And as for me? I'll be over here preparing to become the world's most financially responsible aunt. Baby gifts may include books, toys, and, if I have anything to say about it, a contribution toward that little one's future.
I send my brother a name for the new baby every day for consideration. Because I’m excited and because I’m his little sister so I am, legally, obligated to annoy him. If you have any names you love, feel free to email them my way and I’ll pass them along.
Happiest Monday!
Chandler