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The “Trump account” savings vehicles that were created as part of last year’s “Big Beautiful Bill” are now available. If you have children younger than 18, should you open one of these 530A accounts for them?
If you had or plan to have a baby born between the beginning of 2025 and the end of 2028, you might as well. For children born during that period who are U.S. citizens, a new account comes with an initial $1,000 deposit from the federal government. It makes sense to take advantage of that benefit.
What you might do with the account after that is a more complicated question.
Your family can put in up to $5,000 a year per child in addition to the initial $1,000 government deposit. This does not lower your taxable income the way a traditional IRA contribution does; it is after-tax dollars. Employers can also contribute if a company sets up the right kind of plan. The maximum employer contribution of $2,500 per employee each year counts toward the same $5,000 cap on contributions. Business owners who pay themselves a salary could use this to fund a child’s account with pre-tax dollars.
The money goes into a low-cost index fund. Every account starts in the State Street SPDR Portfolio S&P 500 ETF, which charges 0.02% a year. Over time, account holders can choose among four other broad-market index funds in the same low-fee range. The child takes control at 18, and from there the account works like a regular traditional IRA.
The new accounts have some features that do not compare favorably with existing options like 529 college savings plans or Roth IRAs.
When money comes out, the family contributions are tax-free. The earnings, the federal $1,000, and any employer contributions are taxed as ordinary income. Nothing can be taken out of a Trump account before the year the child turns 18, so the money is no help in an emergency.
There are better options. A 529 savings plan has higher contribution limits and provides tax-free withdrawals for educational purposes. A Roth IRA is also funded with after-tax dollars, but it pays out completely tax-free. The catch is that a child needs earned income to fund one. The $5,000 annual cap on a Trump account is also lower than that of a regular IRA, which has a limit of $7,500 for 2026, although a child can only put into an IRA as much as they earn. A regular brokerage account holding a low-dividend index fund may also be an option. It is taxed only on its growth, and at long-term capital gains rates, which for most people run lower than the rates on wages. It has no contribution limit, and the money is accessible at any time.
One provision of the 530A that can be used to improve the deal is its morphing into a traditional IRA when the child turns 18. At that point, the owner could convert the account to a Roth IRA. This would require paying income tax on the taxable portion of the balance, meaning the seed money, employer contributions, and growth. Since 18-year-olds usually have little income, that tax bill would likely be small. After the Roth conversion, subsequent growth and withdrawals would be tax-free.
The concept of the 530A accounts is sound, and the initial $1,000 deposit is worth having. Yet the accounts are poorly structured, and the way they are taxed makes them less useful than other options families already have.
So claim the seed money if your child qualifies. But before you make additional contributions, compare these accounts to the other options and choose what is appropriate for your circumstances.
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