Trump Accounts: Take the Free Money, Skip the Hype
If you have a loved one who had a baby since January 2025 - you’re going to hear a lot about something called a Trump Account in the coming months.
The advertising is coming. The financial industry is going to push these hard. You’re going to see claims about how your grandchild could have hundreds of thousands of dollars by the time they’re 18, how this is the best way to build wealth for the next generation, how you need to act now.
Here’s my take: Take the free money. That’s it. Beyond that, there are better places for your contributions. Let me explain.
Trump Accounts were created by the One Big Beautiful Bill Act, signed into law on July 4, 2025. They’re a new type of tax-advantaged savings account for kids under 18 with a Social Security number. The account is locked until the child turns 18, at which point it converts to a traditional IRA and follows those rules going forward.
During the “growth period” - from when you open it until the year before the child turns 18 - the money must be invested in low-cost U.S. equity index funds like the S&P 500. No cash sitting around, no sector funds, no picking individual stocks. Just broad market index funds with expense ratios capped at 0.1%. That part is actually fine.
Here’s where the free money comes in. Every U.S. citizen child born between January 1, 2025 and December 31, 2028 is eligible for a one-time $1,000 contribution from the federal government. It doesn’t count against any contribution limits. It’s just free money deposited into the account.
On top of that, Michael and Susan Dell announced a $6.25 billion donation to seed these accounts for about 25 million children. If a child is age 10 or under, was born before January 1, 2025, and lives in a zip code where the median household income is below $150,000 - which covers about 75% of U.S. zip codes - they’re eligible for a $250 contribution from the Dell Foundation.
So if you have a grandchild born in 2025, 2026, 2027, or 2028, and you live in an eligible zip code, that child could get $1,250 in free money. Born in the right window but in a higher-income zip code? Still $1,000 free. Have a grandchild who’s 8 years old and lives in an eligible zip code? That’s $250 free.
Let’s do the math on what free money becomes over 18 years.
Take the $1,000 government contribution for a baby born this year. Assume it sits in a broad U.S. stock index fund averaging 7% annual returns - a reasonable long-term assumption. That $1,000 grows to approximately $3,400 by the time the child turns 18. You did nothing but fill out a form. The $2,400 in growth? That happened automatically.
If the child also gets the $250 Dell contribution - so $1,250 total - that becomes roughly $4,250 at 18. Still just paperwork. That’s worth doing.
But here’s the catch: the free money isn’t automatic. You have to actively claim it.
To get the $1,000 government contribution, someone needs to fill out IRS Form 4547 - Trump Account Election. This can be filed with your tax return or through an online portal at trumpaccounts.gov that’s expected to launch in mid-2026. But the form is intensive. From what we’re hearing from tax professionals, it’s time-consuming, tax preparers don’t love it because it’s not worth the fee they’d charge, and it may not be built into TurboTax, H&R Block, and other tax software initially.
This is my concern: some families are going to miss the free money simply because the form is a hassle and they don’t know how to navigate it. New parents are exhausted. They’re figuring out sleep schedules and pediatrician visits and whether they can afford daycare. A complicated IRS form is not at the top of their list.
If you have family members or friends with babies born 2025 through 2028, offer to help them with the paperwork. Walk them through it. Don’t let them miss out on free money because the form is confusing. That’s one of the most valuable things you can do for a new parent right now.
Now let’s talk about what happens beyond the free money - because this is where I stop being excited.
Anyone can contribute to a Trump Account once it’s set up. Parents, grandparents, aunts, uncles, friends. The contribution limit is $5,000 per year total from individuals, and that limit is indexed for inflation starting in 2028. Employers can also contribute up to $2,500 per year toward an employee’s child’s account, and it doesn’t count as taxable income to the employee.
So should you be putting your own money into these accounts?
The honest answer is: probably not. There are better options for most families.
Here’s the core problem. A Trump Account gives you tax-deferred growth - money grows without being taxed each year - and then it’s taxed as ordinary income when withdrawn. That’s the same treatment as a traditional IRA.
But there’s no tax deduction when you contribute. And there’s no tax-free withdrawal for education like a 529 plan offers. And many states give you a state tax deduction for 529 contributions that you won’t get with a Trump Account.
Let me make this concrete with an example.
Linda is 58, lives in Ohio, and just became a grandmother. Her daughter had a baby boy, Marcus, in March 2025. Linda wants to help save for Marcus’s future - maybe college, maybe something else.
She’s got two main options: put $5,000 a year into Marcus’s Trump Account, or put $5,000 a year into a 529 plan.
Let’s say she does this for 18 years. At 7% average annual returns, both accounts would grow to approximately $180,000 by the time Marcus is ready for college.
With the Trump Account, when Marcus withdraws that money, it’s taxed as ordinary income. If he’s in the 22% federal bracket and lives in a state with income tax, he might owe $45,000 or more in taxes. After-tax value: roughly $135,000.
With the 529 plan, if Marcus uses the money for qualified education expenses - tuition, fees, books, room and board - he pays zero federal tax on the growth. Ohio also gives Linda a state tax deduction of up to $4,000 per year for her contributions. After-tax value: the full $180,000, plus Linda saved money on her state taxes every year along the way.
The 529 wins. It’s not even close for education savings.
But what about that strategy you’ll hear about - the one where you let the Trump Account grow, then convert it to a Roth IRA when your child turns 18? The pitch goes like this: your kid will be in a low tax bracket at 18, they’ll pay minimal taxes on the conversion, and then they’ll have decades of tax-free growth in a Roth.
Sounds great. There’s just one problem: the kiddie tax.
The IRS isn’t naive. They know parents might try to shift income to their kids to take advantage of lower tax brackets. So there’s a rule. For children who are still dependents on their parents’ tax return - and that includes most 18-year-olds heading to college - unearned income above $2,700 gets taxed at the parents’ rate, not the child’s rate. This applies to kids under 19, or under 24 if they’re full-time students.
Here’s what that looks like in practice.
Say Marcus turns 18 with a Trump Account worth $50,000. He’s a full-time college freshman, still a dependent on his parents’ tax return. His parents are in the 32% federal bracket.
If Marcus converts the entire Trump Account to a Roth IRA, here’s the tax bill:
First $1,350: Tax-free
Next $1,350: Taxed at Marcus’s rate (10%) = $135
Remaining $47,300: Taxed at his parents’ rate (32%) = $15,136
Total federal tax on conversion: approximately $15,270
That’s not a “low tax conversion.” That’s a significant hit. Add state taxes and it gets worse.
The Roth conversion strategy works for some families - specifically, if the child is not a dependent, is supporting themselves, and actually is in a low tax bracket. But for the typical college-bound 18-year-old still on their parents’ return? The math doesn’t work like the advertisements suggest.
So who is a Trump Account actually good for?
First and most importantly, anyone getting free money. If you have a child or grandchild born 2025-2028, file the paperwork and get the $1,000. If they’re in an eligible zip code for the Dell contribution, get that $250 too. Free money is always worth taking, period.
Second, if your employer offers contributions. If your company will put $2,500 a year into your child’s Trump Account as an employee benefit - that’s essentially additional compensation. Take it.
Third, if you’ve already maxed out everything else. If you’re already contributing the maximum to 529 plans and you want another tax-deferred bucket for a child, a Trump Account is an option. Though even then, a regular brokerage account might offer more flexibility, and long-term capital gains rates are often better than ordinary income rates.
Fourth, if you’re certain education isn’t the goal. The 529’s restrictions don’t matter if you know the money won’t be used for school. But even here, other vehicles might work better depending on your situation.
Here’s what I’d actually recommend for most families saving for kids.
For education savings, start with a 529 plan. Earnings grow tax-free, withdrawals for qualified education expenses are tax-free, many states offer tax deductions for contributions, and you can now roll up to $35,000 into a Roth IRA after 15 years if the money isn’t needed for school. The annual K-12 withdrawal limit just increased to $20,000 per student starting in 2026. Lifetime contribution limits vary by state but typically range from $235,000 to over $600,000.
If your child or grandchild has earned income - a summer job, babysitting income, anything legitimate - consider a custodial Roth IRA. They can contribute up to $7,500 for 2026 or their earned income, whichever is less. Growth is tax-free, qualified withdrawals in retirement are tax-free, and contributions can be pulled out anytime without penalty. The catch: they need actual earned income.
For flexible savings with no restrictions on use, there’s the old-fashioned UTMA/UGMA custodial account. More investment options, no contribution limits beyond gift tax considerations, and the child gets full control at 18-21 depending on your state. The kiddie tax applies to gains, but qualified dividends and long-term capital gains are taxed at lower rates than the ordinary income you’d face in a Trump Account.
A few mistakes to watch out for.
Don’t assume the Trump Account is special just because it’s new. The tax treatment isn’t better than alternatives that already exist. “New” doesn’t mean “better.”
Don’t let the advertising convince you this is the best place to save for your grandkids. The financial industry is excited about Trump Accounts because they represent 18 years of money sitting with them, collecting fees - even at 0.1%, that adds up across millions of accounts. That’s fine. I’m a capitalist. But you’ve got to be careful about believing the hype. There’s going to be truth mixed in with the marketing, and that’s what makes it dangerous.
Don’t miss the free money because of complicated paperwork. Set a reminder. Help the new parents in your life. The form might be a hassle, but $1,000 that grows to $3,400 over 18 years is worth a couple hours of paperwork.
And don’t get swept up in the Roth conversion strategy without understanding the kiddie tax. Run the numbers for your specific situation. For most college-bound kids, the conversion won’t work the way you think it will.
So where does this leave you?
If you have a grandchild, niece, nephew, or friend’s child born in 2025 through 2028, your priority is simple: help them get the $1,000. Check if their zip code qualifies for the $250 Dell contribution. File Form 4547 when you file your 2025 taxes, or use the online portal when it launches in mid-2026. Let the free money grow. Mission accomplished.
If you want to contribute more beyond that, think carefully about whether a 529 plan might serve the family better. Talk to them about their goals. For education savings, the 529 almost always wins.
If you’re seeing the advertising and wondering if you should open a Trump Account for a grandchild born before 2025 - one who doesn’t get the free money - slow down. There’s no government contribution. There’s no special tax treatment that beats other options. The only advantage is the low expense ratio requirement, and you can get that in a 529 or regular brokerage account anyway.
The bottom line: Free money is always worth taking. But don’t let the marketing convince you that Trump Accounts are the best place to save for your kids or grandkids. They’re one option among many, and for most families, they’re not the best one.
Take the free money. Help the new parents you know navigate the paperwork. And for your own contributions, look at all your options before you decide.