The Pros & Cons of Trump Accounts & Other Investment Options for Minors
For those wanting to invest money in an account for the benefit of their children, there have been several viable options, and now there is one more: a Trump Account.
What is a Trump Account?
The tax legislation that was passed in July 2025 created a new kind of investment account, the Trump Account. Named for our current president, these are investment accounts for children. They are designed to give kids a financial head start by allowing parents or other interested parties to invest money for them at an early age. Contributions are limited to $5,000 per year and can be made by almost anyone, even employers. The funds must be invested in low-cost mutual funds of mostly American companies. Taxes are deferred until withdrawal and gains are taxed as ordinary income.
At age 18, the child will gain access to the funds in their account, but there are limitations. Distributions can be taken to start a business, go to college, or buy a home without penalty. Distributions for other reasons before age 59 ½ are subject to a 10% penalty. Also, once the owner reaches age 18, the contribution limits change to match those of IRAs.
Advantages & Disadvantages of Trump Accounts
Why would you want to open a Trump Account? Free money. The US treasury will deposit $1,000 into the account of any child born between 2025 and 2028. Some wealthy philanthropists have joined in as well. The Dell Foundation will give $250 to the first 25 million children under the age of 10 who are not eligible for the government funds and live in a zip code with a median household income below $150,000. The accounts are also more flexible than other accounts commonly used for minors, such as 529 plans.
One major inconvenience with Trump Accounts is that tax forms will need to be filed by the donor for every gift made. Also, the accounts count as the child’s asset on the FAFSA, which can have a negative impact on student financial aid. Finally, it is not yet clear if individual states will defer the taxes on the accounts or not. California has already announced that they will not.
How to Open a Trump Account
Trump Accounts will officially launch on July 4, 2026, but you can apply to open one now. There is a new tax form, Form 4547, that can be filed with your taxes to open accounts for up to two children at a time. For more information, you can go to the government’s dedicated website at trumpaccounts.gov.
Other Investment Options for Minors
Trump Accounts are not the only options to invest money for your kids. Here are some other options that have been around awhile, each with their own unique advantages and disadvantages.
529 Plan
A 529 Plan is designed specifically for college savings. After-tax money is invested in the account and can be withdrawn tax-free, including growth, for qualified higher education expenses. Some states offer state tax deductions and also allow funds to be used for K-12 expenses. There are no age limits, so even adults can open and use 529 plans. These plans are usually state-sponsored (though eligibility is open to residents of all states) and have a set menu of investment options available.
The greatest benefit of a 529 plan is the tax-free investment growth when used for college expenses. State tax deductions can also be beneficial as well. For example, Minnesota allows a deduction of up to $3,000 regardless of which state’s 529 plan you’re participating in and South Carolina offers an unlimited state tax deduction. The disadvantage of 529 plans is that the funds must be used for qualified educational expenses or they are subject to a 10% withdrawal penalty. Also, there are limited investment options within each 529 plan.
Roth IRA
A Roth IRA is a retirement account that is funded with after-tax funds and all withdrawals are tax-free. These are not designed for minors, but having earned income (from outside the home) can make a minor eligible to open and fund one. The contribution limit is the lesser of earned income or the limit for that year ($7,500 in 2026). Since it is specifically a retirement account, there is a 10% penalty for withdrawals before age 59 ½. However, there are a number of exceptions. Contributions can be removed at any time and the funds can be used penalty-free to fund higher education and up to $10,000 for a qualified home purchase.
The greatest benefits of the Roth IRA are the tax-free growth and the almost unlimited investment options. The biggest challenge is that the minor has to have earned income in order to open and fund an account.
UTMA/UGMA
Uniform Transfer to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts are custodial accounts where the funds legally belong to the minor but are managed by an adult on their behalf. There are no contribution limits for UTMAs and UGMAs and no restriction on their use. However, putting money into one is an irrevocable gift that the minor will have unfettered access to once they reach the age of majority, which ranges from 18 to 25, based on state law.
The advantage of UTMAs and UGMAs is that there are few limitations on contributions, use, and investments. However, the disadvantage is that the child gains full control of the funds at a specified age, whether or not they are prepared to handle it wisely. Also, the funds are the legal assets of the minor, which can impact their opportunities for financial aid.
Brokerage in Parents’ Name (with TOD)
A final option is for a parent (or other adult) to open a taxable investment account in their own name and list the child as the “transfer on death” designee. This is different from the previous options because the funds still legally belong to the adult and they have complete control over them. There are no tax benefits for these accounts but also no limitations on their use. The greatest benefit of this setup is that the parents retain ownership and control of the funds, while the disadvantage is that they are subject to the parents’ tax rates.
Which Account is Best for Your Child?
So, which account is best for your child? As with many things in financial planning, it depends. It depends on your own unique situation, including your purpose of the funds, tax situation, and maturity of your child. We can only give personalized advice once we get to know you as a person, so sign up for a free introductory phone call today!
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner® and Certified Kingdom Advisor®. He has a passion for helping people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.