This article appeared in SoFi's On the Money newsletter. Not getting it? Sign up here.
When the government's new "Trump Accounts" launch on July 4, not only will eligible kids start getting their $1,000 in seed money, but the door will officially open for family, friends — even philanthropists — to begin contributing.
But this also means it's time to really understand these new investment accounts, including how they differ from the options parents with children already have. To help you and your family make plans, here's how Trump Accounts compare with 529 plans, custodial IRAs, and standard brokerage accounts.
Trump Accounts at a glance
Trump Accounts are a form of Individual Retirement Account (IRA) that kids take over when they turn 18. U.S. citizens born between 2025 and 2028 will get a one-time contribution of $1,000 from the government, but anyone under 18 with a Social Security number is eligible to have one.
TL;DR: They function similarly to a traditional IRA, but with three main twists: a child doesn't have to earn income to have one, anyone can contribute, and contributions from individuals aren't tax deductible.
So if your child is eligible for the $1,000, opening one is a no-brainer: You don't want to walk away from free money. Otherwise, given the limited tax benefits, the decision could come down to whether an employer is willing to kick in a matching contribution or how much you're focused on saving for college versus other priorities.
For instance, unlike a Trump Account, withdrawals from a 529 are not taxed if used for eligible education expenses. And you can fund Kindergarten–12th grade expenses with a 529, whereas your child can't access the money in a Trump Account until they turn 18.
Here's how Trump Accounts stack up against other investment options:
| Contribution limits | Tax treatment | Drawbacks | Unique selling point(s) | |
|---|---|---|---|---|
| Trump Account | $5,000 per year, excluding any contributions from governments or nonprofits | Individual contributions aren't tax deductible, and investment earnings are taxed as ordinary income when withdrawn | Limited tax benefits compared to a 529 or custodial Roth IRA | Potential for government seed money and/or outside contributions |
| 529 Plan | IRS has no per-year limit, and the state caps are usually lifetime, not annual | Contributions aren't tax deductible, but investment earnings are tax-free if withdrawn for qualifying education expenses | Limited to educational expenses | You can roll over up to $35,000 of unused funds into a Roth IRA |
| Custodial Roth IRA | $7,500 per year, unless the child's taxable income is lower | Withdrawals are tax-free | Applies to a limited group, since only children who earn income can contribute | The value of contributions can be withdrawn anytime, penalty free |
| Custodial Traditional IRA | Contributions are tax deductible, but withdrawals are taxed as ordinary income | The child's contributions are tax-deductible | ||
| Brokerage Account | Unlimited | No tax breaks | You must pay capital gains tax on any earnings | Freedom to buy/sell anytime |
A few other things to know:
• Once your child turns 18, traditional IRA rules apply to Trump Accounts. That means early withdrawal penalties are waived if your child spends the money on qualifying expenses like education or the purchase of a first home.
• The $5,000 contribution limit includes a maximum of $2,500 from a parent's employer. And unlike the parent's own contributions, employer contributions are excluded from the employee's taxable income.
• Qualifying third party donations (like the $6.25 billion pledge from Michael and Susan Dell’s charitable funds) don't count toward the $5,000.
• Sign-up details are posted on trumpaccounts.gov. The gist: Complete IRS Form 4547, download the app, and create an account. Then look for an invite e-mail between now and July 4.
So what?
Trump Accounts are meant to "jumpstart the American Dream" by leveraging the power of compound investment growth earlier, before someone even earns their first paycheck. And just by raising the profile of early-age saving and investing, their rollout is already having an impact. (As of early June, nearly 6 million people had signed up.)
But because investment growth in a Trump Account is taxed at ordinary income rates, you may want to use one to capture outside money rather than house your core family savings.
Related Reading
Trump Accounts for Kids: How Do They Stack Up? (NerdWallet)
Improving Trump Accounts (Cato Institute)
Explaining TrumpIRA.gov and the New Saver's Match (SoFi)
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
OTM20260624SW