The Trump Account: Free Money for Your Kids and Grandkids, With a Catch

If you have a child or grandchild born in 2025 or later, the federal government wants to give them $1,000. All the parents have to do is ask.

That is the headline on Trump Accounts, the new children’s savings accounts created by last year’s tax law. Contributions opened on July 4, and Treasury published its first detailed regulations this week, so the picture is finally clear enough to act on. Several clients have asked me whether these accounts are worth the trouble. The short answer: claim the free money, then think carefully before adding much of your own.

How a Trump Account works

Think of it as a traditional IRA for a child, with training wheels. Any child under 18 with a Social Security number can have one. Children born January 1, 2025 through December 31, 2028 also get a one-time $1,000 deposit from the Treasury. Parents claim it by filing IRS Form 4547 with their tax return or enrolling at trumpaccounts.gov.

Once the account is open, family and friends can add up to $5,000 a year combined. Employers can contribute up to $2,500 of that, and it does not count as taxable income to the employee. Charities and governments can add money on top of the cap, which is how the Dell family’s $6.25 billion pledge will put an extra $250 into roughly 25 million accounts, focused on communities with the greatest need.

While the child is a minor, the money has to sit in low-cost US stock index funds. No stock picking, no bonds, no cash. For a 17-year horizon, that is a reasonable default.

The catch

Here is the part the headlines skip. When the child eventually takes money out, the growth is taxed as ordinary income, not at capital-gains rates and not tax-free. The same goes for the $1,000 seed and any employer or charity dollars. Only the family’s own after-tax contributions come back untaxed.

And “eventually” is the right word. Nothing comes out before 18. After 18 the account is a plain traditional IRA, so withdrawals before 59½ generally pay the 10% penalty, with the usual exceptions for a first home (up to $10,000) and college costs.

So a Trump Account is really a retirement account that happens to start at birth. That is not a bad thing. Seventy years of compounding on $1,000 is real money. But it is not a college fund, and it is not a down-payment fund.

Where it fits

For most families I work with, the ranking looks like this. Claim the $1,000 seed, because free is free. Capture any employer contribution, because $2,500 of untaxed pay is a raise. Then stop and look at the alternatives before adding your own money.

If the goal is education, a 529 plan still wins: higher limits, tax-free growth for tuition, and access when the bills arrive. If the child has a summer job, a custodial Roth IRA wins: the same long horizon, but tax-free instead of ordinary income on the way out. The Trump Account earns its place only after those two are covered, or for a child too young to earn and a family that has already funded the 529.

A note for grandparents

Many of my clients are grandparents, and this is where the accounts get interesting. You can contribute directly to a grandchild’s Trump Account, and the gift counts against the annual exclusion like any other. A few things to keep in mind. The $5,000 cap is shared with everyone else who contributes, so coordinate with the parents before you write the check. The money is the grandchild’s at 18, with no strings, which is a feature to some and a bug to others. And if you are choosing between funding a 529 you own and a Trump Account the grandchild owns, the 529 keeps you in control and keeps the growth tax-free. For most grandparents the Trump Account is a nice supplement, not the main vehicle.

What to do this month

Make sure every eligible child in your family has an election filed, either on Form 4547 or through trumpaccounts.gov. If the parents use a tax preparer, send them this post. Ask HR whether your employer offers a Trump Account match. And hold off on moving the account to a brokerage. Treasury has not yet published the rules for transferring accounts to private custodians, and firms like Schwab and Fidelity are still waiting on them. When that opens up, I will let clients know.

Tangent Retirement Inc. is a registered investment adviser in California. This post reflects the law and Treasury guidance as of October 3, 2026 and is general information, not tax or investment advice. Rules are still being finalized; confirm the details with your tax professional before acting.