Trump Accounts: A New Way to Start Building Wealth for Your Kids

The Pros, Cons, Tax Treatment—and Whether Converting to a Roth at 18 Makes Sense

A new savings vehicle is coming in 2026 that aims to give American children an early start on investing: “Trump Accounts.”

Created under the One Big Beautiful Bill Act, these accounts are designed to function like a starter retirement account for children, with the goal of encouraging long-term investing from birth.

For families thinking about generational wealth and early investing, the idea is intriguing, but the tax benefits are not as straightforward as many headlines suggest.

Let’s walk through how the accounts work, their advantages and drawbacks, and why a Roth conversion strategy at age 18 could potentially unlock the biggest long-term benefit.

What Are Trump Accounts?

A Trump Account is essentially a tax-deferred investment account for minors, structured similarly to a traditional IRA but owned by the child.

Parents or guardians manage the account until the child becomes an adult.

Key features

• Eligibility: Any U.S. citizen child under age 18 with a Social Security number can have an account.
• Government seed money: Children born between 2025–2028 receive a $1,000 federal contribution.
• Annual contribution limit: Up to $5,000 per year per child from parents, relatives, or others.
• Employer contributions: Employers may contribute up to $2,500 annually toward an employee’s child.
• Investments: Funds must generally be invested in low-cost index funds tracking U.S. equities.
• Access: Funds typically become accessible when the child turns 18.

Think of it as a government-seeded, IRA-style investment account for kids.

The Tax Treatment

This is where many people misunderstand the program.

Contributions

• Contributions are NOT tax-deductible.
• Unlike a traditional IRA, parents do not receive a tax break for funding the account.

Growth

• Investments grow tax-deferred while the child is under 18.
• This means no annual tax on dividends, capital gains, or interest.

Withdrawals

• Once funds are withdrawn, they are generally taxed as ordinary income, similar to distributions from a traditional IRA.
• The funds can potentially be used for:
  • Education
  • Job training
  • First home purchases
  • Starting a business
  • Retirement savings 

The Pros

1. Early compounding
   Starting investments at birth creates a massive compounding advantage.
   Even modest contributions over 18 years could produce a meaningful nest egg.
2. Government seed capital
   The $1,000 federal deposit is essentially free capital to start investing.
3. No education restrictions
   Unlike 529 plans, the money does not have to be used for college.
   This flexibility may appeal to families uncertain about future education plans.
4. Avoids “kiddie tax” issues
   Because it’s structured like a retirement account, earnings grow tax-deferred instead of being taxed annually. 

The Cons

1. No upfront tax deduction
   Parents receive no tax benefit for contributions, making it less attractive than other tax-advantaged vehicles.
2. Taxable withdrawals
   Unlike Roth accounts or 529 plans, distributions are typically taxed as ordinary income.
3. Limited investment options
   Accounts must generally invest in low-cost index funds tracking U.S. equities.
4. Control shifts at age 18
   Once the child becomes an adult, the account legally belongs to them.
   That can be both a feature and a risk.

The Roth Conversion Opportunity at Age 18

This is where the strategy gets interesting. When the child turns 18, the account effectively begins functioning like a traditional IRA. At that point, converting the account to a Roth IRA may be a powerful planning move.

Why* a Roth conversion could make sense

Most 18-year-olds have very little taxable income. That means they may be able to convert the entire account at a very low tax rate.

Example: If the account has grown to $25,000 by age 18, converting it could create a taxable event of $25,000 (less contributions).

But if the child is in a low bracket—or even using their standard deduction, the tax cost may be minimal.

The payoff
After conversion:

• Growth becomes tax-free
• Withdrawals in retirement become tax-free
• The money could compound for 40–50 years

That could turn a small early investment into a very large long-term asset.

Trump Accounts vs Other Kid Savings Vehicles

For many families, Trump Accounts may complement—not replace—existing strategies.

The Final Verdict?

Trump Accounts introduce an interesting concept: government-seeded investing accounts designed to encourage early wealth building.

However, the tax advantages are more modest than many assume.

The real opportunity may lie in strategic planning once the child reaches adulthood, particularly the possibility of converting the account to a Roth while the child is in a low tax bracket.

Used thoughtfully, the combination of:

• early contributions
• decades of compounding
• and a well-timed Roth conversion

could turn a modest account into a meaningful long-term asset.

*Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. 8830295RG_Mar28