Terry Savage Explains What Trump Accounts Could Mean for Your Kids’ Future

So, the government has just rolled out something called “Trump Accounts.” Don’t let the name steer you into a political debate; think of it as another way to tuck money away for a child’s future, much like a 529 plan but with its own quirks.

Officially launched on July 4, the program is open to any child under 18, but there’s a sweetener for kids born between January 1 2025 and December 31 2028: a one‑time $1,000 government contribution, provided the youngster has a Social Security number. No catch there—just a little nudge to get families started.

The idea is simple. Parents or legal guardians open the account, contribute up to $5,000 a year, and let the money sit in broad‑based stock‑market index funds. The earnings grow tax‑deferred until the child turns 18, at which point the cash can be used for college, a business venture, or any other big‑life goal. Early withdrawals may carry penalties, and ordinary income tax applies on the earnings above a modest $2,700 threshold.

Getting set up isn’t rocket science. Head over to TrumpAccounts.gov, fill out IRS Form 4547 (you’ll need an Id.me login for that), and provide your child’s name, address, and SSN. After you submit the form, you’ll get an activation email, and a companion app lets you watch the balance grow in real time.

Money can come from family, friends, or even an employer. Up to $2,500 of each child’s $5,000 annual limit isn’t counted as income for the parent, which can be handy for tax planning. Philanthropists like Michael Dell and Ray Dalio have already pledged foundation money to help low‑income families seed these accounts, so you’re not alone in the crowd.

How does this stack up against the more familiar 529 college‑savings plan? First, 529s generally allow much larger contributions—state‑set limits can reach six figures over a lifetime. Second, qualified education withdrawals from a 529 are tax‑free, whereas Trump Account withdrawals are taxable as ordinary income. On the flip side, a 529’s funds can be rolled into a Roth IRA (up to $35,000) if the child doesn’t need all the money for school. Trump Accounts do permit Roth conversions, but they may trigger taxes.

The website offers some eye‑catching projections. A $1,000 government seed could swell to about $6,000 by age 18 with no extra deposits. Add $250 a year and you might see $19,000; max out the $5,000 yearly contribution and the model shows a potential $271,000 balance at graduation. Remember, those numbers assume historical market returns—no guarantees.

Bottom line? If you can afford it, there’s no reason not to open both a 529 and a Trump Account. The former offers larger, tax‑free growth for education; the latter adds a diversified, tax‑deferred investment that could serve broader goals. It’s a double‑dip on your child’s future—and, yes, on America’s economy, too.

—Terry Savage, registered investment adviser and author of “The Savage Truth on Money.” You can ping her questions at TerrySavage.com.