Education Planning and Wealth Transfer
Trump Accounts, thanks to the Michael & Susan Dell Foundation, made headlines this month with the promise of up to $1,250 in seed money to jump-start savings for newborns. Created under the One Big Beautiful Bill Act, these accounts represent the federal government’s first direct effort to help American families build wealth for the next generation. Here’s what you need to know.
What Are Trump Accounts?
In short: tax-advantaged investment accounts designed for children under 18. Think of them as a hybrid between a traditional IRA and a 529 college savings plan—with some important distinctions.
The accounts will become available for contributions on July 4, 2026 (America’s 250th anniversary). Parents, grandparents and employers can contribute up to $5,000 per year per child. Charitable organizations can also make contributions without limit. The funds must invest in broad U.S. equity index funds like the S&P 500. And fees are capped at just 0.1% annually.
The Government’s Gift
Perhaps the most notable feature is the $1,000 government contribution available to children born between Jan. 1, 2025, and Dec. 31, 2028. This seed funding requires nothing more than opting in at enrollment, and families of any income level qualify.
The program already has a boost from a private donor. The Michael & Susan Dell Foundation recently pledged $6.25 billion to provide $250 contributions to 25 million children ages 10 and younger in lower-income ZIP codes. Other corporations, including Nvidia and Robinhood, have signaled interest in contributing to employee accounts. Additional charitable and employer contributions in the years ahead are a distinct possibility.
Trump Account Trade-Offs
Trump Accounts come with meaningful restrictions. The money is inaccessible until the child turns 18. There are no exceptions for financial hardship, pre-college education expenses or emergencies. The accounts must also invest in funds focused on U.S. companies’ stocks, limiting the opportunity to diversify risks and assets. This is a significant departure from 529 plans, which allow qualified education withdrawals at any time (though only up to $20,000 per year for private K–12 tuition) and include a wide range of global stock, bond and money market funds as investment options.
Once the child reaches 18, the account converts to a traditional IRA. Withdrawals before age 59 ½ for nonqualified purposes will trigger ordinary income tax plus a 10% penalty. Qualified purposes include higher education, purchasing a first home or starting a business.
Parents or contributors must fill out a tax form (the not-yet-available “Form 4547”) to establish the account, opt in to the seed money and make investments. This process is more cumbersome than establishing a 529 plan account or IRA.
You’ll also need to be aware of that $5,000 limit. Let’s say your employer makes a $1,000 contribution for your child and then a grandparent separately contributes $5,000. That would put the account $1,000 above its annual limit, and the excess contributions would have to be withdrawn or potentially incur a 6% annual penalty (the same as for traditional IRAs).
TRUMP ACCOUNTS VS. 529 PLANS
| Feature | Trump Account | 529 Plan |
|---|---|---|
| Tax treatment of contributions | After-tax (no federal deduction) | After-tax federally; many states offer deductions or credits |
| Tax treatment of qualified withdrawals | No withdrawals before 18. After 18, converts to traditional IRA; qualified withdrawals taxed as ordinary income | Tax-free for qualified education expenses |
| Tax treatment of nonqualified withdrawals | Before 18: not permitted. After 18: taxed as ordinary income plus 10% penalty if before 59½ | Earnings taxed as ordinary income plus 10% penalty on earnings portion |
| Contribution limits | $5,000/year per student from individuals/employers; charitable/government contributions uncapped | Married couples can superfund up to $190,000 (varies by state); lifetime limits typically $300,000–$500,000+ |
| Government seed funding | $1,000 one-time for children born 2025–2028 | Federal none; some states match a portion of contributions or give gifts upon opening an account |
| Investment options | Broad U.S. equity index funds only; 0.1% fee cap | Varies by plan; typically includes stocks, bonds, age-based portfolios |
| Who can contribute | Parents, grandparents, family, employers, charities, governments | Anyone |
| Permitted uses | Locked until 18; then education, first home, business, or retirement | Education: tuition, fees, books, room/board, K–12 (up to $20K/yr in 2026), student loans |
| Portability | Can transfer to another brokerage; after 18, follows IRA rollover rules | Can change beneficiary; roll to different state's plan; up to $35K can roll to Roth IRA |
| Liquidity | None before age 18—no hardship exceptions | Can withdraw anytime (with penalty on earnings for nonqualified use) |
| Account control | Parent controls until 18; beneficiary owns after conversion | Account owner retains control indefinitely; can change beneficiary |
Source: IRS. SavingForCollege.com
Other Education Savings Vehicles
Trump Accounts and 529 plans aren’t the only choices. Depending on your goals, you have other options to consider:
Coverdell Education Savings Accounts (ESAs) offer tax-free growth for education expenses with more investment flexibility than 529s, though contributions are limited to $2,000 annually and phase out at higher incomes.
Custodial accounts (UTMA/UGMA) provide maximum flexibility—funds can be used for any purpose—but the child gains full control at the age of majority (18 or 21, depending on the state), and there’s no special tax advantage.
Roth IRAs for children are an option if your child has earned income. Contributions grow tax-free, and withdrawals in retirement are tax-free as well. Qualified education expenses do not trigger the early withdrawal penalty, but earnings on contributions are subject to income tax.
Crummey trusts allow you to transfer assets to a child or grandchild while qualifying for the annual gift tax exclusion. There are no restrictions on how the funds are used, but withdrawals do not receive special tax treatment for education expenses.
Our Opinion
Because of the tax treatment and other restrictions, we believe the greatest value of these accounts is the $1,000 government gift for children born between Jan. 1 this year and Dec. 31, 2028. Any future charitable gifts by third-party organizations will be a bonus. Most investors will have other education savings and wealth transfer strategies available to them that come with fewer strings attached.
If education funding is your priority, a 529 plan likely remains the more flexible and tax-efficient choice, and it allows you to save significantly more per year for each beneficiary. If you’re already maximizing other tax-advantaged accounts and want another avenue for long-term wealth transfer, Trump Accounts could play a supporting role in your strategy, but the options shared above may better serve the same purpose. We believe it’s in your best interest to explore the choices accessible to you before investing your own money in a Trump Account.
Your RWA team is happy to work with you to understand how these new accounts might fit into your overall plan.
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