Special Edition: Trump Accounts Are Open — Should You Put Money In?
Whenever I have the opportunity to personally test these things, I like to. That way I can speak from firsthand experience, not just what I read online.
I opened Trump Accounts for both of my kids. They are ages 15 and 11, so they don’t qualify for the $1,000 government seed (that’s only for children born between 2025 and 2028). But I wanted to see how the system works firsthand.
The process was easier than I expected. I did it when I prepared our 2025 taxes on TurboTax, and they made Form 4547 very easy to complete - basically it is just asking inforamtion about your children. Last week, I received the link to finalize the accounts- it only took a couple of minutes for both of them, combined. I just had to confirm the data, and I was told I’ll get a notice on July 4 when they’re open for contributions.
We don’t know exactly how the investment process will work yet, but given that the Treasury is using established financial institutions, I expect it will be straightforward, like most online investment accounts.
Trump Accounts got a lot of attention when they were announced. Free money for kids! A new way to save thousands! But now that they’re actually open, the question is- should put additional money in beyond the free $1,000?
For most families, Trump Accounts are often the least advantageous option for saving for your kids. The math makes the decision clear.
What Trump Accounts Actually Are
Let’s start with the basics before we crunch the numbers. Trump Accounts are custodial investment accounts for children under 18. Children born between 2025 and 2028 are eligible for a one-time $1,000 government contribution (it is technically a tax credit that is deposited in the account automatically). Family members and employers can make additional contributions up to $5,000 per year total, with employer contributions capped at $2,500 within that limit. All contributions by family memebers are made with after-tax money (that is, you cannot deducat the contribution from your taxes). The money must be invested in low-cost US stock index funds. No can be made until age 18. At 18, the account becomes subject to traditional IRA rules.
The timeline. Accounts officially opened last week for those who elected at tax time. Contributions can begin July 4, 2026 (and for those eligable, the $1,000 government seed will be deposited on July 4 or soon after).
Take the Free $1,000 If Your Child Qualifies
If your child was born between January 1, 2025 and December 31, 2028, they’re eligible for the $1,000 government contribution. This is free money. Take it.
The math on $1,000 invested for 18 years at roughly 7% average return. Starting balance of $1,000, ending balance at 18 of about $3,380. That’s $2,380 in growth from money that cost you nothing.
Even with ordinary income tax on withdrawal, this is pure upside. You didn’t contribute it. You’re not giving up anything else to get it.
What you need to do. If you haven’t already, open the account via Form 4547 or TrumpAccounts.gov. When you receive the confirmation notice, finalize the account. When it opens July 4, make sure the $1,000 actually gets invested. Don’t let it sit in cash.
Free money only works if you follow through and invest it.
But Should You Contribute Additional Money?
Here’s where it gets interesting. And where most coverage of Trump Accounts gets it wrong.
The Cato Institute recently published an analysis showing that Trump Accounts are often the least tax-advantaged savings vehicle available to families. That sounds surprising, so let me show you the math.
The Tax Treatment Nobody’s Talking About
When your child withdraws money from a Trump Account, the growth is taxed as ordinary income (just like a salary from a job). But when they sell investments in a regular brokerage account, the growth is taxed at capital gains rates (the rates for money you made in investments rather than earning in a job). Those rates are lower, potentially 0% for many of our readers.
For 2026, long-term capital gains are taxed at 0% for single filers with taxable income up to roughly $49,450. That means a young adult just starting out, in college or early career with low income, would pay nothing on investment gains in a regular brokerage account.
In a Trump Account, that same growth gets taxed as ordinary income. Even in the 12% bracket, that’s real money.
Let’s Run the Numbers
Let’s say a child is born in 2025 and gets the $1,000 government seed. You contribute an additional $1,000 per year for 18 years.
Assuming a 7% annual return, that means you contributed total contributions of $19,000 (the $1,000 seed plus $18,000 from you) and the account will be worth roughly $43,000 when your child is 18. So your investment grew by $24,000.
Now let’s say the child withdraws at 18 or 19 to help pay for college.
In a 529 plan used for education, tax on $24,000 in gains is $0. After-tax value of the total savings is $43,000.
In a Trump Account, the gains are taxed as ordinary income. Even at the lowest 10% bracket, that’s $2,400 in taxes. After-tax value is $40,600.
The Trump Account gives you $2,400 less than a 529. On the same contributions. With the same growth. For the same purpose.
If you or your child is in a higher bracket at withdrawal, the gap widens. At the 12% bracket, the tax is $2,880. At 22%, it’s $5,280.
For education savings, 529s win.
Why This Happens
The tax treatment of Trump Account contributions from family is unusual. And not in a good way.
You contribute with after-tax money, just like a regular brokerage account. But withdrawals of growth are taxed as ordinary income, unlike a regular brokerage account where long-term gains get the lower capital gains rate.
This is actually worse than a normal taxable account. In a regular brokerage account, your child would pay 0% on long-term gains if their taxable income is under roughly $49,450. In a Trump Account, they’d pay 10% or 12% on the same gains.
For 529 plans, the comparison is even more stark. Contributions are after-tax. Growth is tax-free when used for education. Tax on qualified withdrawals is $0.
Even a regular investment account is often better. Long-term capital gains are taxed at lower rates than earned income. For 2026, a single filer pays 0% on long-term gains if their taxable income is under roughly $49,450. So a parent or young adult with modest income would pay $0 on those same $24,000 in gains. Even if they’re above that threshold, the 15% capital gains rate still beats the 22% or 24% ordinary income rate they’d pay on Trump Account withdrawals.
Bottom line- If you’re saving for your child’s education, 529s win decisively.
When Trump Account Contributions Do Make Sense
There is one scenario where additional Trump Account contributions make sense.
The very rare case where you’ve already fully funded your child’s education, the 529 is maxed or not needed, and you want to boost your child’s future Roth IRA, and you’re comfortable locking the money away until they’re 18.
Here’s why. At age 18, the Trump Account becomes subject to traditional IRA rules. Your child can then convert it to a Roth IRA while they’re in a low tax bracket during college years or early career. If they convert when their income is low, they pay minimal tax. And then the money grows tax-free forever.
Unfortunately, the vast majority of families who will use this strategy and benefit from them are those who are already wealthy.
Better Options for Most Families
If you want to save for your children or grandchildren, here’s the priority order.
First, for education expenses, 529 plans. Tax-free growth for qualified education expenses. State tax deductions in many states. You control the account, not the child. You can change beneficiaries if one child doesn’t need it. And thanks to SECURE 2.0, up to $35,000 can be rolled to a Roth IRA if unused (and that will start bulding for a first home, retirement, or other expenses the child will have in life
Second, if the child has earned income (such as from babysitting or a part-time job or working for your business), custodial Roth IRAs. Tax-free growth. Tax-free qualified withdrawals. Contributions can be withdrawn anytime, though not earnings. This requires the child to have earned income from a job, babysitting, or similar work.
Third, for general savings and flexibility, brokerage accounts. No contribution limits and you can invest in anything. If your child uses the money when they are early in their career, long-term capital gains taxes are potentially 0%. The money can be used for anything - education, first car, apartment deposit.
Use Trump Accounts for the free $1,000 only. Take the government contribution for eligible kids. And if you do qualify, don’t let the $1,000 sit in cash. When the accounts open July 4, make sure the money is actually invested in the index funds so it will grow with your child.