If you've been following recent financial legislation, you've probably heard about Trump Accounts:a new investment savings account designed to help families build long-term wealth for children.
Like any new financial tool, there has been plenty of excitement, but also a fair amount of confusion.
While Trump Accounts may become an excellent planning opportunity for many families, they're not a one-size-fits-all solution, and there are still some unanswered questions as Treasury and the IRS continue releasing guidance.
Here's what we know today.
What Is a Trump Account?
A Trump Account is a long-term investment account created for children under age 18. Unlike a Roth IRA, earned income is not required, making these accounts accessible to nearly every family.
For 2026:
Eligible children may receive a one-time $1,000 government seed contribution (if born between January 1, 2025, and December 31, 2028)
Up to $5,000 per year may be contributed (subject to future inflation adjustments)1
Contributions may come from parents, grandparents, employers, charities, or certain local governments
Contributions are made with after-tax dollars
For many parents, this creates another option for investing early and allowing decades of compound growth.
How Can the Money Be Invested?
Unlike brokerage accounts, Trump Accounts have investment restrictions designed to encourage low-cost, diversified investing.
Current guidance limits investments primarily to:
Broad U.S. stock index mutual funds
Exchange-traded funds (ETFs)
Investments that track the S&P 500 or other qualifying U.S. equity indexes
Funds with very low expense ratios
While these limitations reduce investment flexibility, they also encourage disciplined, long-term investing.
The Biggest Misunderstanding: How Withdrawals Are Taxed
One of the most common misconceptions is that Trump Accounts work like Roth IRAs.
They don't.
Instead, withdrawals generally follow Traditional IRA tax rules, meaning every distribution consists of a proportional mix of taxable and non-taxable dollars.
Here's an example:
Suppose the account contains:
$5,000 of after-tax contributions (basis)
$20,000 of taxable earnings
Total account value = $25,000
If the beneficiary withdraws or converts $10,000, they cannot simply withdraw their contributions first.
Instead, every distribution is calculated proportionally:
20% tax-free basis
80% taxable income
In other words:
$2,000 would generally be tax-free.
$8,000 would generally be taxable.
This "pro-rata" treatment is an important distinction and something families should understand before making future withdrawal decisions.
What Happens When the Child Turns 18?
This is currently one of the most discussed aspects of Trump Accounts.
Many professionals believe that beginning January 1 of the year the beneficiary turns 18, the account may effectively become a non-deductible Traditional IRA.
However, Treasury and IRS guidancehasnot yet clearly confirmed that interpretation.
Until additional regulations are issued, we believe it's prudent to avoid treating this as settled law.
As financial planners, we expect additional clarification over the coming months and will continue monitoring developments closely.
How Does a Trump Account Compare to Other Savings Options?
Families already have several excellent tools available, including:
529 Plans
Ideal for education savings with tax-free qualified education withdrawals.
Custodial Roth IRAs
Excellent for children with earned income and long investment horizons.
UTMA/UGMA Accounts
Provide flexibility for general savings but come with different ownership and tax considerations.
Each serves a different purpose, and in many cases, a Trump Account may complement(not replace)these existing strategies.
Is a Trump Account Right for Your Family?
Like most financial planning decisions, the answer depends on your goals.
Questions worth asking include:
Are you already saving through a 529 plan?
Does your child have earned income that could qualify them for a Roth IRA?
What is the intended purpose of these funds?
How comfortable are you waiting for additional IRS guidance before making long-term decisions?
There isn't a universal "best" account:only the account that best aligns with your family's financial plan.
Our Perspective atSageCreek
Whenever new legislation creates a new planning opportunity, it's tempting to focus on the headlines.
AtSageCreek, we prefer to focus on how the strategy fits into your overall financial picture.
Trump Accounts appear to be a promising new tool for helping families save for the next generation. However, like any new law, the details continue to evolve, and thoughtful planning is more important than ever.
We'll continue following Treasury and IRS guidance as it's released and help our clients determine when, and if,these accounts make sense for their families.
If you'd like to discuss whether a Trump Account fits into your financial plan, we'd be happy to help.