Trump Accounts for kids: A path to tax-free savings?

Trump Accounts are a new tax‑deferred savings vehicle for children that allow up to $5,000 annual contributions, a $1,000 Treasury seed for those born 2025‑2028, and a possible Roth IRA conversion at age 18, but advisers say the advantages depend on future tax rules and alternatives such as 529 plans.

More than 6.5 million children have been registered for a Trump Account, even as advisers continue to debate whether they're really a top savings vehicle for kids.

Registration for the tax-deferred investment accounts began this year for children under age 18 with a Social Security number. Individuals, companies, state and local governments, and qualified charities can contribute annually up to a combined $5,000 to a Trump Account, but $1,000of Treasury seed money is only available to U.S. children born between 2025 and 2028. About 1.4 million children registered were eligible to receive $1,000, according to a U.S. Treasury spokesperson.

Trump Accounts will invest in low-cost index funds. No withdrawals are allowed until the year the child turns 18 years old, when they'll be treated like a traditional IRA with basically the same rules.

Most advisers tell their clients to sign their babies up for a Trump Account to get the free $1,000, but beyond that, reviews are mixed. Some tout the ability to convert a Trump Account into a Roth IRAat 18 years old to allow tax-deferred growth to become tax-free for life. Others said that may be attractive, but it depends on what the plans are for the money and how much faith you have that things never change.

"The Roth conversion is taxable, but the tax-free growth over many decades is appealing," said Richard Pon, certified public accountant in San Francisco. But "it really depends on what the money will be used for and when and how confident you are that the Roth law will still be around."

USA TODAY Shopping: Shop sales in tech, home, fashion, beauty & more curated by our editors.

How can Trump Accounts become tax-free?

Normally, people must earn income to open a Roth account. Even youth Roth IRAs can only accept income children have earned doing work like babysitting, mowing lawns or delivering newspapers.

However, the Trump Account "creates a legal pathway into a Roth IRA that does not rely on earned income contributions," said Mat Sorensen, founder and chief executive of Directed IRA & Directed Trust Company, in a blog.

Get the The Daily Moneynewsletter in your inbox.

A collection of articles to help you manage your finances like a pro.

Delivery: Mon - Fri

Your Email

The loophole is that the year the child turns 18 years old and the Trump Account turns into a traditional IRA, it becomes eligible for a Roth conversion, advisers said. Transitioning into an IRA also opens up investment choices beyond only the low-cost index funds that the Trump Accounts allowed.

"And, if we're strategic about how we convert the Traditional IRA (formerly a Trump Account) when the child reaches age 18 there will be no tax on the Roth conversion," Sorensen said.

Paying zero tax on the Roth conversion assumes the 18-year-old or young adult has little to no income that'll put them in the zero federal tax bracket, he said. As long as "the taxable portion of the Roth conversion is under the standard deduction ($16,100 in 2026), they will pay no tax on the amounts converted," Sorensen said.

However, even if the young adult "has little taxable income, converting the account to a Roth IRA could generate a modest tax bill while locking in decades of tax-free growth," wrote Luke Delorme, director of financial planning at Tableaux Wealth, in a blog for the Center for Retirement Research at Boston College.

Should Trump Accounts be a top savings plan?

Despite some benefits that a Trump Account can provide, some advisers still said that there may be better options depending on what you want to use the money for.

If, for instance, the money's intended to pay for college, "a parent is better off with a 529 plan as that is nontaxable when withdrawn," Pon said. Some leftover 529 money can also be rolled later into a Roth IRA for tax-free growth. Parents also offer an upfront state tax deduction for contributions.

At 18 years or older, a child who "has earned income...can simply open their Roth account now instead of making a taxable Roth conversion at age 18," Pon said.

Finally, the Trump Account conversion twist "assumes that at age 18, Roth conversions are still allowed," he said. "Laws change over time, so who knows what will happen. For example, when Social Security was first introduced, it was nontaxable. Then, in the 1970s, it became partially taxable. When I bought my condo, there was no limit on property tax deductions and now there is a SALT (state and local tax) cap."

Delorme said, "for families with children born between 2025 and 2028, electing the $1,000 pilot contribution appears straightforward. Additional employer or philanthropic initiatives aimed at seeding accounts could further increase early balances."

But ultimately, "the relevant question is not whether Trump accounts are inherently good or bad but how they fit within a broader savings strategy," he said.