A new savings vehicle for children—the “Trump Account”—has generated a lot of attention.

And for good reason: between the government seed contribution, annual family gifts, and tax-deferred growth, it sounds appealing on the surface.

But the details matter.

In today's email, I'm sharing what these accounts are, how they work, and when they may (or may not) make sense.

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Before we dive in, did you catch this week's podcast? 👇

What Is a Trump Account?

A Trump Account is a new tax-advantaged investment account designed for children.

It blends features from several existing savings vehicles, creating something that sits somewhere in between.

Here are the key features 👇

• Annual contributions: Up to $5,000 per year
• Investments: Low-cost U.S. stock index funds only
• Tax treatment: Tax-deferred growth
• Withdrawals: Generally begin after age 18
• Taxation: Contributions come out tax-free; gains are taxed as ordinary income

Let’s unpack each of these in more detail.

Contributions

One of the most talked-about features is a $1,000 government seed contribution for children born between 2025 and 2028—assuming an account is opened in their name.

After that, contributions can come from parents, grandparents, or others, up to a combined $5,000 per year.

A few important rules:

• The child must be age 17 or younger
• The child must have a valid Social Security number
• Only one funded account is allowed per child

All contributions flow into that single account.

Investment Options Are Limited

The investment menu is intentionally simple.

Funds must track broad U.S. stock market indexes, with expense ratios capped at 0.10%.

From a long-term perspective, that’s a positive.

Low-cost index funds have historically been one of the most reliable ways to capture market returns.

But there are trade-offs:

• No international diversification — Investments are limited to U.S. equities, so broader diversification would need to happen elsewhere.
• No ability to shift to bonds — The account stays fully invested in stocks, even as the child approaches adulthood.

Future rule changes could expand these options, but for now, the structure is intentionally narrow.

How Taxes Work

This is where Trump Accounts differ from traditional custodial accounts.

Instead of generating taxable income each year, growth is tax-deferred—allowing the account to compound uninterrupted.

Once the child reaches age 18, withdrawals follow rules similar to a Traditional IRA:

• Contributions come out tax-free
• Investment gains are taxed as ordinary income

Penalty-free withdrawals may be allowed for certain uses, including:

• Qualified education expenses
• A first-time home purchase (up to $10,000)
• Other qualifying situations

The primary benefit here is simple: time and tax deferral.

For example, investing $1,000 per year from birth through age 18, earning 8% annually, could grow to more than $1.3 million by age 65.

That’s the power of starting early—and letting compounding do the heavy lifting.

How They Compare to Other Child Savings Options

To understand where these accounts fit, it helps to compare them to existing tools.

529 Plans: Best suited for education savings. They offer broader investment options and tax-free withdrawals for qualified education expenses.

Roth IRAs for Kids: Once a child has earned income, Roth IRAs can be incredibly powerful—offering tax-free growth and tax-free qualified withdrawals.

Custodial Accounts (UGMA/UTMA): Offer full flexibility but lack tax deferral, and investment income may be subject to the kiddie tax.

Where Trump Accounts Fit

Trump Accounts sit somewhere in the middle.

They offer:

• Tax-deferred growth
• Low-cost, simplified investing
• A structured, long-term savings vehicle

But they also come with:

• Limited investment flexibility
• Ordinary income taxes on gains

For many families, this will simply be one more tool in the toolbox, not a replacement for existing strategies.

Two Additional Considerations

1) While the child owns the account, it's managed by a parent or guardian until age 18, and the funds generally can't be accessed during that period.

2) Because the account belongs to the child, families may also want to consider how it could affect future financial aid calculations, though the exact treatment may evolve as regulations develop.

Bottom Line

For families looking to start investing early for a child, Trump Accounts offer a simple, low-cost way to do it (with the added benefit of tax-deferred growth).

But they’re not a one-size-fits-all solution.

Depending on your goals—whether it’s education, long-term wealth building, or tax efficiency—529 plans, custodial accounts, or Roth IRAs may still be the better fit.

As always, the right approach depends on how all the pieces work together within a broader plan.

📚 What I've Been Reading

• Why Custodial Accounts Are Better Than Trump Accounts (Kitces)
• A Primer on Prediction Markets (Wharton University of Pennsylvania)​
• IRS Adds AI Abuse, Capital Gains Fraud to ‘Dirty Dozen’ Tax Scam List (CFO Dive)​
• How Much Will Your Long-Term Care Needs Cost? It Depends on How Average You Are (Boston College)​
• Are Americans Getting Richer? New Data Might Surprise You (Human Progress)​
• New Neuroscience Reveals 6 Secrets That Will Increase Your Attention Span (Barking Up The Wrong Tree)​
• The Lost Art of Sharing a Bottle (Wine Enthusiast)​

Thank you for reading!

Please reply to this email with comments, questions, and/or feedback.

Stay wealthy,

Taylor Schulte, CFP®