Trump Accounts for Children: What Wealthy Parents and Grandparents Need to Know

Posted On April 3, 2026 By Scott Stratton, CFP(R), CFA In College Savings, Financial Planning / No Comments

A new savings vehicle known as Trump Accounts is set to launch in July 2026, designed to encourage children to begin investing early. I am a big fan of this idea. The US Stock market and the power of compound interest have created incredible wealth for American families and these accounts can jump start the next generation of investors.

The Trump accounts allow contributions from parents, grandparents, and employers and include a $1,000 government seed deposit for eligible newborns. For families already planning multi-generational wealth, Trump Accounts come with limitations compared with existing vehicles such as 529 college savings plans, UGMA/UTMA custodial accounts, or family trusts.

See how multi-generational planning can fit into your retirement strategy in Retirement Income Planning

What You Need to Know About Trump Accounts

Trump Accounts are tax-deferred investment accounts for children under 18, focused on long-term stock market growth. Parents or guardians must establish the account; the $1,000 government contribution is not automatic. Children born between 2025 and 2028 qualify for this deposit, which will be invested in an approved index fund once the account is open. For children born outside this window, accounts can still be opened, but they will not receive the government seed.

Link to establish account: https://trumpaccounts.gov/

Or fill out IRS form 4547 with your tax return https://www.irs.gov/forms-pubs/about-form-4547

The accounts have an annual contribution limit of $5,000 per child, which includes contributions from parents, grandparents, or employers. Employers can contribute up to $2,500 per employee, and these contributions can also fund an employee’s dependent child’s account. The employer contribution counts toward the $5,000 total annual limit.

Investment options are restricted. Trump Accounts are primarily invested in U.S. stock index funds, with very little room to diversify into bonds, international indexes, or alternative assets. For most wealthy parents and grandparents, international options will not be available. The child gains full control of the account at age 18, at which point the money can be used for any purpose.

The accounts are taxed like non-deductible IRAs. Contributions are made with after-tax dollars, growth is tax-deferred, and withdrawals must be allocated pro-rata between contributions and gains, with gains taxed as ordinary income. This can be cumbersome and an accounting headache to track your basis. For example, if an account contains $20,000, with $10,000 in contributions and $10,000 in gains, 50% of any withdrawal is taxable as ordinary income.

Self-Employment and Employer Contribution Strategies

For self-employed families, the employer contribution rules present a small but meaningful opportunity. A business can contribute up to $2,500 per employee, which can fund either a dependent child’s account or the employee if they are under age 18. Grandchildren generally do not qualify for an employer contribution unless they are legally dependent. For the business, the contribution to the Trump account is a business expense which is tax-deductible.

One idea for self-employed couples is to designate both spouses as employees of the same business. This allows each spouse to contribute $2,500 to Trump Accounts for children, effectively doubling the employer contribution potential. Note that the employer contribution counts towards the $5,000 annual limit.

It is important to note that employer contributions are subject to nondiscrimination rules. Employers cannot favor highly compensated employees while excluding rank-and-file staff. Benefits must be offered on comparable terms to all eligible employees, or the plan risks losing its tax-advantaged status.

Tax Treatment and Investment Limitations

Trump Accounts are simple in design, but this simplicity comes at the cost of flexibility. Funds are largely restricted to broad U.S. stock indexes, and active management or rebalancing options are extremely limited. While a few approved ETFs or mutual funds may be available, for the majority of families, the account essentially functions as a single U.S. stock index fund investment. We don’t yet know the details of the accounts, other than the only investment options will be broad US stock indexes.

Tax treatment is another important consideration. Because gains are taxed as ordinary income rather than long-term capital gains, wealthy families often find that UGMA/UTMA custodial accounts provide a more tax-efficient alternative. Unlike Trump Accounts, UGMA/UTMA accounts allow investment in a wide range of assets and enjoy long-term capital gains rates, which are typically lower than ordinary income rates. Additionally, UGMA/UTMA accounts have no annual contribution limit, which allows for larger, more strategic gifts to children.

Comparing Alternatives for Wealthy Families

While Trump Accounts are designed to encourage early investment, they are not necessarily the most efficient vehicle for affluent families. For families saving specifically for college, 529 plans remain superior. 529 contributions grow tax-free, and withdrawals for qualified education expenses are completely tax-free, making them more effective than Trump Accounts, where gains are taxed as ordinary income. Some states offer a state tax deduction for 529 contributions.

10 Questions Grandparents Ask About 529 Plans

For more flexible investments outside of college, UGMA/UTMA accounts offer both tax advantages and broader investment choices. These custodial accounts allow investments in individual stocks, ETFs, and other assets, with taxation at long-term capital gains rates. Like Trump Accounts, the child gains control at age 18, but contributions are not capped at $5,000 per year.

For very large estates, trusts or family limited partnerships are the most powerful vehicles. They allow substantial gifting beyond the Trump Account limits, structured control over distributions, and significant tax planning flexibility.

Using Trump Accounts Strategically

Despite limitations, Trump Accounts do have value, especially for eligible children born 2025–2028. The $1,000 government seed is effectively free money, giving every child a modest head start in the market. Even modest contributions can grow dramatically over decades due to compounding. And hopefully more parents and children will be learning about the stock market.

A practical strategy for families might include opening a Trump Account for the government deposit and supplementing it with contributions to a UGMA/UTMA account or 529 plan. Self-employed families can use the employer contribution rules strategically, including the spousal employee approach, to maximize tax benefits while staying compliant with nondiscrimination rules.

The accounts also offer a simple, low-fee introduction to investing in U.S. equities for children, potentially encouraging financial literacy from a very young age. However, parents should be mindful that the child gains full control at age 18, so significant contributions should be paired with other planning vehicles if the money needs to remain invested longer or used strategically.

The Bottom Line

Trump Accounts represent a thoughtful initiative to encourage early stock market participation. Every eligible child should receive the $1,000 government seed, and families should consider using the account as a starter investment in U.S. equities.

For wealthy parents and grandparents, however, Trump Accounts are unlikely to be the centerpiece of a multi-generational wealth strategy. Tax treatment is less favorable than UGMA/UTMA custodial accounts, contribution limits are restrictive, and investment options are narrow. For college savings, 529 plans remain the better option, and for larger transfers, trusts or family investment vehicles offer far more flexibility and tax efficiency.

Ultimately, the best approach for most families is to take the free $1,000, invest it in the market, and use other tools for additional contributions and strategic wealth planning. With thoughtful planning, Trump Accounts can complement existing strategies without replacing more effective vehicles.

If you’d like guidance on how Trump Accounts can fit into your family’s long-term wealth and retirement plan, consider requesting an introductory conversation

FAQ: Trump Accounts for Wealthy Families

Can Trump Accounts replace a 529 plan?
No. For college savings, 529 plans remain superior because growth is tax-free and withdrawals for qualified education expenses are completely tax-free. Trump Accounts’ gains are taxed as ordinary income.
Are UGMA/UTMA accounts better than Trump Accounts?
Often yes. UGMA/UTMA accounts allow long-term capital gains treatment, no strict annual contribution limits, and broad investment flexibility, making them more efficient for wealthy families.
Should I use trusts instead?
For high-net-worth families, trusts or family limited partnerships are usually the best vehicle for larger transfers. They allow structured control over distributions, significant tax planning, and contributions well beyond Trump Account limits.
Can Trump Accounts be used together with other vehicles?
Absolutely. Many families use the $1,000 government seed as a starter investment while contributing larger amounts through 529s, UGMA/UTMAs, or trusts for more strategic, tax-efficient planning.
Are Trump Accounts suitable for all wealthy families?
They are useful as a supplement, particularly for children eligible for the government seed, but they are rarely going to be the centerpiece of a comprehensive wealth strategy for affluent parents or grandparents.

529 Plan Rules

Posted On March 11, 2020 By Scott Stratton, CFP(R), CFA In College Savings /

College is often a parent’s biggest expense after retirement, yet people are hesitant to save because they don’t know the 529 Plan rules. A 529 College Savings Plan is a terrific wealth building investment for families and has more benefits and flexibility than people realize. While I think investors need to prioritize their own retirement and wealth management, that time horizon is much longer than for college. Retirement accumulation takes 40 years and then will be spent over 20-30 years. College saving is 18 years or less and then 4-6 years of spending.

College costs are growing faster than CPI and it already costs $300,000 for four years at most private universities. If your student changes majors, or decides to stay for a graduate degree, their cost could reach $500,000. 44.7 million American have student loan debt, totaling over $1.6 trillion. Students loans are a looming crisis; 11.1% are presently delinquent or in default and repayment is crushing a lot of Millennials. Many of us had student loans when we were younger, but do not fully appreciate how the magnitude of these loans have grown since we were in college.

Yes, there are a few drawbacks to College Savings Plans, and that’s why I want you to understand the 529 Plan rules. The value is so significant that when people get hung up on the rules, I think they risk missing out on substantial tax benefits and investment opportunities. After all, there are rules for 401(k) accounts and Roth IRAs, but most people are happy to navigate those rules to reap the rewards.

Tax Rules of 529 Plans

The primary benefit of a 529 Plan is tax-free withdrawals for qualified higher educational expenses, such as tuition, room and board, and books. You can now also use a 529 Plan towards private K-12 tuition, up to $10,000 a year. You can also use $10,000 towards student loan repayment.
There is no Federal tax deduction for 529 Plan contributions, however, many states do offer a state income tax deduction. In some states, you have to contribute to that state’s plan to get a deduction. In other states, you can contribute to any plan. For Texas, there is no state income tax, so there is no deduction for a 529 plan contribution.
Contribution limits: most plans have very high limits, often $350,000 or higher. However, most donors want to stay under the annual gift tax exclusion of $15,000 per person. The IRS will let you contribute 5 years at once, or $75,000 per beneficiary. If you and your spouse are funding a 529, you can each contribute $75,000 or $150,000 total under the gift tax exclusion. If you want to contribute more than that, you can. You just have to file an annual gift tax return. You will not owe any taxes until your gifts exceed your unified lifetime exemption of $11.58 million (2020). (Note: certain candidates propose to lower the estate tax threshold to $3.5 million. If that happens, you may want to exceed the gift limits now to reduce a future estate tax liability.)
All 529 Plans offer tax-deferred growth, so you pay no taxes on interest or capital gains annually. Now the part that stops everyone in their tracks: non-qualified withdrawals are subject to income tax and a 10% penalty.

Tax/Penalty Only on Earnings

Let’s dissect that a bit more, because it’s not as bad as you might think. The income tax and penalty apply ONLY to the earnings portion, not the whole withdrawal. For example, if you contributed $50,000 to a 529 and it grew to $70,000, you would have $20,000 in earnings. Withdraw the whole $70,000 for a non-qualified reason and you would pay a $2,000 penalty and the $20,000 earnings would be treated as ordinary income. At the 24% tax bracket, you’d pay $4,800 in income taxes.

Withdrawals are pro-rata, meaning earnings are proportional for each distribution. A non-qualified withdrawal from a 529 plan is not subject to the 3.8% net investment tax (the Medicare surtax), if you earn over $200,000 single or $250,000 married.

Ways Around the Penalty and Tax

Everyone is frozen by the thought they might have to pay a penalty, but there are exceptions and ways to avoid it. Here are more 529 Plan rules to know:

If the beneficiary dies or becomes disabled, the 10% penalty is waived. If they receive a scholarship, the penalty is waived. Earnings are still taxable, but no penalty.
You can change the beneficiary to another child, grandchild, other relative, or even yourself. If they can use the money for higher education, you’re back to tax-free withdrawals. If you have two or more children or grandchildren, I think it’s pretty likely that someone in your family is going to be able to use the money.
Kid not going to college? You can do nothing and wait. Just because they turned 18, you don’t have to withdraw the money. It never becomes their money and you never lose control of the funds. You can keep it deferred for as long as you like. Maybe they later go to trade school or an apprenticeship program. That’s a qualified 529 expense. Or maybe they have kids of their own down the road. Now you have a college account for your grandkids.
You can give the money to your kid if you want. The taxes are payable to the distributee. Have the 529 distribute the money to your kids and they will owe any tax and penalty on the gains. (And they may be in a lower tax bracket than you. So, this is good tax planning, not being selfish on your part.)
For long-term care. Let’s say your kids don’t use the money and you don’t have grandchildren and this account sits there for decades just growing tax-deferred. If you become disabled you can change the beneficiary to yourself and receive the disability waiver on the penalty.

More Benefits of a 529 Plan

A 529 remains the property of you, the owner. If you instead funded and UGMA or UTMA, that becomes the property of the beneficiary at the age of majority (18 or 21; 21 in Texas). UGMA equals You Give Money Away. They can spend it on anything they want, including whatever terrible decisions you can imagine. No one is thinking this is possible when someone is three, but you give up all your control with an UGMA.
Creditor Protection. Are you a business owner, doctor, or professional worried about getting sued? 529 Plans are creditor protected.
Financial Aid. A 529 plan is a parental asset, subject to a 5.6% expected family contribution from the FAFSA financial aid process. Put that asset in the child’s name and the expected contribution is 20% a year. A 529 plan in the grandparent’s name is not reportable on the FAFSA.
A 529 Plan will not be part of your taxable estate. You can and should name a successor trustee/owner of the funds for after you pass away. As such, 529 plan could be an important way to create a legacy for your family.

It’s Your Family’s Future

If you like the idea of Tax-Free Growth, a 529 Plan could benefit your family. When people get too worried about the 10% penalty and the other 529 Plan rules, they are often paralyzed to take action. Investors contribute to 401(k)’s and Roth IRAs that have a 10% penalty, but they seem to think that with a 529 it’s going to be worse. To get the best tax benefit from a 529, you want to start as early as possible. Opening a 529 plan for a 17 year old going to college in the Fall does not leave you much time for tax-free growth.

Parents and Grandparents want their children have the same opportunities they had. Many would like for their kids to go to the same or better university than they attended. Let’s start with estimating what four years would cost and what it would take to fund that expense monthly starting now.

Don’t have kids yet? Open a 529 Plan in your own name. When your child is born, you can change the beneficiary to their name. We can fund a 529 with a lump sum, or you can set up small monthly contributions. Expenses on 529 plans have been declining in recent years and many offer low-cost index based investment options. You have daily liquidity, however, most plans restrict you to two trades a year to discourage market timing. Almost all plans offer age-based funds, which adjust to become more conservative as a beneficiary approaches college age.

I hope to make it easy to understand the 529 Plan rules, so you can get started. Please don’t hesitate to email me with your questions, I’m here to help.

10 Questions Grandparents Ask About 529 Plans (Updated for 2026)

Posted On July 7, 2014 By Scott Stratton, CFP(R), CFA In College Savings / 1 Comment

1) What are the tax benefits of 529 plans?

529 plans grow tax-free, and qualified withdrawals for educational expenses are not subject to federal income tax. Some states also offer state income tax deductions or credits for contributions. There are no federal tax deductions for contributions, but tax-free growth and withdrawals for qualified purposes remain a core benefit.

2) Which 529 plan should I choose?

Some states offer a state tax incentive for residents who participate in their 529 plan (e.g., a state deduction), while other states do not. Even in states without income tax, you can choose low-cost plans from any state. Compare fees, investment options, and state tax benefits before selecting a plan.

3) What expenses can you use a 529 plan for?

Qualified expenses include tuition, fees, books, supplies, computers, and room and board (up to certain limits). You can also use up to $10,000 lifetime from a 529 plan to repay student loans for the beneficiary. Each state plan may vary slightly in how it treats various qualified costs.

4) Are there limits to 529 contributions?

Contributions are treated as gifts for gift tax purposes. There’s an annual gift tax exclusion, but you can elect to “superfund” five years of contributions in one year without consuming gift tax exemption. High contributions may require filing a gift tax return and count against your lifetime gift/estate tax exemption.

For 2026, the gift tax exclusion is $19,000 per beneficiary. For a married couple, they could give $38,000 ($19,000 each). Front loading contributions for 5 years is $95,000 from one person or $190,000 from a married couple.

5) How do assets in a 529 plan impact estate planning and eligibility for Medicaid?

529 plan assets are generally excluded from your taxable estate, which can reduce potential estate tax exposure. For Medicaid eligibility, states vary on how they treat 529 assets — some include them in asset tests. Always check rules for your state’s programs.

6) How do 529 plans affect students’ eligibility for financial aid?

Money in a grandparent-owned 529 plan isn’t reported on the federal financial aid application (FAFSA) as an asset, which can improve eligibility for need-based aid relative to assets in the parent’s or student’s name. However, distributions from a grandparent plan may count as student income when received, which can impact aid in subsequent years. It may be preferable, if possible, to save a grandparent 529 for the last year of college.

7) What if my student doesn’t need all the 529 plan funds?

There are multiple options for unused 529 funds:

Change the beneficiary to another qualifying family member (including siblings or cousins).
Use up to $10,000 for student loan repayment.
Leave the funds for future education costs, including for future children of the current beneficiary.
Take a non-qualified withdrawal (subject to tax on earnings and a penalty) if other options aren’t suitable.

8) Can leftover 529 funds be rolled into a Roth IRA?

Yes — under rules effective starting in 2024 through SECURE Act 2.0, families now have the option to move unused 529 plan funds to the Roth IRA of the plan beneficiary on a tax-free, penalty-free basis, subject to specific conditions:

Key points of this rollover option:

The 529 plan must have been open for the same beneficiary for at least 15 years.
Amounts rolled over are limited to lifetime total of $35,000 per beneficiary.
Annual rollovers can’t exceed the current Roth IRA annual contribution limit (e.g., $7,500 for 2026, higher if the beneficiary is age 50+).
The beneficiary must have earned income at least equal to the amount rolled over in the year of transfer.
Funds must transfer trustee-to-trustee directly into a Roth IRA to qualify.

This rollover option does not allow contributions into a Roth IRA for someone other than the beneficiary, and contributions (or earnings on them) made within the past 5 years may be ineligible.

This change offers a valuable way to repurpose leftover education savings into retirement savings — but the rules are technical and should be reviewed carefully with a planner or advisor.

9) How do 529 plans affect my own access to the money?

You, as the plan owner, can withdraw funds at any time. If used for non-qualified expenses, earnings are subject to income tax and a 10% penalty (except in certain exceptions). When withdrawing non-qualified amounts, the distribution is treated proportionally between contributions and earnings.

10) When does it make sense to pay tuition directly instead of using a 529 plan?

If a student is close to college age and account growth would be limited before spending, it may make sense to pay costs directly. Giving money directly to a student or grandchild can count against gift tax exclusion amounts and may affect financial aid eligibility. Establishing a 529 early in life typically offers the greatest tax-free growth potential.

529 plans remain a powerful tool for college savings — and the new Roth IRA rollover option adds flexibility for leftover funds when education expenses are covered. If you’d like a planning-first look at how 529 plans fit into your broader retirement and legacy goals, you’re welcome to Request an Introductory Conversation.