A Financial Planner's Guide to Trump Accounts

What Are Trump Accounts?

Trump Accounts are government-funded investment accounts designed to make it easier to save for a child’s future and give them a head start when they reach adulthood. Every baby born in the United States between 2025 and 2028 and issued a valid Social Security Number will be automatically enrolled and receive $1,000. Parents will need to open a qualified mutual fund to claim the deposit.

The concept isn't entirely new—economists have been advocating for "baby bonds" or child development accounts for decades—but their structure and the rules and guidelines relate to them are. And even though the accounts are named after President Trump as part of the OBBBA legislation, the underlying concept has historically enjoyed bipartisan support. The goal is simple: help American children build assets from birth and promote a culture of saving and investing.

Eligibility Requirements for Trump Accounts

To qualify for a Trump Account with the $1,000 government contribution, children must meet these criteria:

• Born between January 1, 2025, and December 31, 2028 U.S. citizen at birth
• Have a work-eligible Social Security number
• Parents' citizenship or immigration status doesn't matter—only the child's

Here’s what you (and your clients) need to know about opening Trump Accounts:

1. The $1,000 for babies is an IRS pilot program that is currently scheduled to end at the end of 2028 (though Congress may pass legislation extending this). The IRS will oversee the distribution of these funds, which much be claimed through qualified financial institutions.
2. This isn't automatic money that just appears—parents need to actively open an account at a bank or qualified financial institution to receive the $1,000. If parents don't voluntarily create an account, the government will establish one when they file their tax return.
3. Once parents claim the $1,000 through the Trump Account, they don’t have to keep contributing to it to keep the seed money. They can snag free money and then focus on other methods of saving if that’s their preference.
4. Parents of children born outside of the 2025 through 2028 window can also open Trump Accounts for their children, but they will not receive the $1,000 from the IRS.

Trump Account Contribution Limits and Rules

The contribution structure gets a bit complex, so let's break it down. Annual Contribution Cap: $5,000 per year, and adjusted for inflation beginning in 2028 Contribution Timeline: Contributions can be made through the calendar year the child turns 17.

Who Can Contribute to Trump Accounts

• Parents, relatives, and friends (after-tax contributions that count toward the $5,000 limit)
• Employers (up to $2,500 tax-free, counts toward the $5,000 limit)
• State and local governments (tax-free, doesn't count toward limits)
• 501(c)(3) charitable organizations (tax-free, doesn't count toward limits)
• Federal government ($1,000 one-time contribution for eligible babies)

Investment Restrictions on Trump Accounts

Trump Accounts have to be approved accounts and the restrictions are pretty specific:

• Funds must be invested in qualified mutual funds
• These funds must track the S&P 500 or similar broad U.S. stock indexes
• No sector-specific or industry-focused funds allowed
• Annual fees capped at 0.1% of the account balance
• No individual stock picking or alternative investments

What to Know about Trump Account Withdrawals

Okay, once the account is established, the account will grow, tax-deferred, until account owners make withdrawals. Let’s look at the rules and guidelines about these.

Before Age 18

Withdrawals aren’t allowed before the child turns 18 except in the case of the child’s death, and the money must stay invested in qualified funds.

After Age 18

Once the child turns 18, the Trump Account essentially transforms into an IRA with specific rules:

• Withdrawals can begin January 1st of the year the beneficiary turns 18, but they are subject to regular income tax on earnings and tax-free contributions from employers/government. However after-tax parental contributions can be withdrawn tax-free.
• Withdrawals before age 59 ½ will have a 10% penalty in addition to regular income tax, but the penalty is waived for qualified expenses including higher education costs and up to $10,000 for a first-time home purchase.
• Capital gains rates do not apply, only ordinary income tax rates.

Comparing Trump Accounts to Other Savings Vehicles

As financial planners, you're probably wondering how Trump Accounts stack up against existing options. Here's the honest comparison:

Trump Accounts vs. 529 Plans

Trump Accounts vs. Roth IRAs

Trump Accounts vs. UTMA/UGMA Accounts

How Trump Accounts Fit into Broader Financial Plans

Here's where your expertise as a financial planner really comes into play. Trump Accounts shouldn't be viewed in isolation—consider them another tool in a comprehensive wealth-building strategy.

For Young Families

• Take the free money: If eligible, definitely open the account for the $1,000 government contribution
• Layer strategies: Use Trump Accounts alongside 529 plans and Roth IRAs
• Focus on employer benefits: If the parent's employer offers Trump Account contributions, that's essentially free money

For Long-term Wealth Building

• Compound interest magic: Starting with $1,000 at birth, even without additional contributions, could grow to approximately $8,000 by age 18 (assuming historical market returns)
• Investment education: These accounts could serve as teaching tools for young adults learning about investing 
• Retirement head start: If converted to a Roth IRA at 18 (rules permitting), the account could provide a significant retirement savings foundation.

For Estate Planning

• Multiple contributors: Grandparents, aunts, uncles, and family friends can all contribute 
• Gift tax considerations: Contributions count toward annual gift tax exclusions
• Wealth transfer: Another vehicle for transferring wealth to younger generations

Action Steps for Financial Planners

Ready to help your clients navigate Trump Accounts? Here are some tips:

Review Client Eligibility 

• Identify clients with children born 2025-2028 who qualify for the $1,000 contribution (note, this is more something to continue to keep in mind)
• Consider clients with older children who might benefit from employer contributions
• Review clients' employer benefits to see if they offer Trump Account contributions

Educate Clients on Contribution Strategies

• Pros of contributing: Tax-deferred growth, potential employer matching, long-term compound growth
• Cons to consider: Limited investment options, complex tax rules, better alternatives may exist
• Sweet spot: Take advantage of free money (government seed, employer contributions) but carefully evaluate personal contributions 

Update Financial Plans

• College planning: Factor Trump Accounts into education funding strategies alongside 529 plans
• Retirement planning: Consider potential for Trump Account to Roth IRA conversions
• Tax planning: Understand the tax implications of various contribution sources and withdrawal strategies

Monitor Legislative Updates

• Stay informed about rule changes and IRS guidance
• Watch for employer adoption of Trump Account contribution programs
• Be aware of potential modifications to withdrawal rules or contribution limits

Set Realistic Expectations

• Be honest with clients about the limitations
• Not a silver bullet: Trump Accounts don't replace comprehensive financial planning
• Complex rules: The tax and withdrawal rules are complicated and may change
• Limited flexibility: Investment options are restricted compared to other accounts

The Reality Check: Pros and Cons for Your Practice

The Good Stuff

• Free money opportunities: Government seed money and employer contributions are legitimate benefits
• Client engagement: New accounts give you reasons to have planning conversations 
• Long-term growth potential: Starting early with stock market investments can build real wealth
• Educational value: Accounts can teach young adults about investing

The Challenges

• Complexity overload: Adding another account type to an already crowded field
• Limited tax benefits: For most uses, other accounts offer better tax treatment
• Investment restrictions: Index funds only, no flexibility for changing market conditions
• Administrative burden: More accounts to track and manage

Your Next Steps: Making Trump Accounts Work

As financial planners, your job isn't to be cheerleaders for every new financial product—it's to be trusted advisors who help clients make smart decisions. With Trump Accounts, that means:

1. Stay informed about rule changes and clarifications from the IRS
2. Evaluate carefully whether these accounts fit each client's specific situation
3. Communicate clearly about the benefits and limitations
4. Focus on comprehensive planning rather than getting caught up in the latest trend

Trump Accounts represent an interesting experiment in encouraging American families to build wealth from birth. Whether they become a permanent fixture in the financial planning landscape or a footnote in savings account history remains to be seen. What matters most is that you're prepared to guide your clients through these decisions with expertise, honesty, and their best interests at heart.

Remember, the best financial plan is one that your clients understand and will actually follow. Sometimes that means recommending the simple, tried-and-true approach over the shiny new option. Your clients are counting on you to cut through the hype and help them build real, lasting wealth for their families.

Become a CFP® Professional: Build Your Skills and Boost Your Business

Having your CFP® marks can help open doors to new opportunities but even better—you learn all the stuff that will make you a better financial planner. You’ll have deeper knowledge of estate planning, investment planning, and all other facets of financial planning and know how they fit together to build holistic, custom plans for your clients. Download our free ebook: Becoming a CFP® Professional with BIF to learn the steps to earn your certification and how BIF makes the process pretty painless.