Breaking down “Trump Accounts”

Saving for a child’s (or grandchild’s) future has always necessitated navigating a multitude of available options: custodial accounts, 529 plans, Roth IRAs for minors, and more. While the abundance of options can feel overwhelming, a new type of account has the potential to muddy the waters even further.

Section 530A accounts, otherwise known as “Trump Accounts,” are a new tax-advantaged savings vehicle for eligible children under the age of 18 that was established via the “One Big Beautiful Bill Act” of 2025.¹ These accounts function as quasi-IRA accounts, sharing many similarities with that traditional retirement savings vehicle, especially after the child reaches age 18. However, there are some key nuances that must be considered when incorporating this account type into one’s financial plan.

When assessing the functionality of a 530A account, it is important to look at it through two separate timeframes: the growth period (through 12/31 of the year in which the child turns 17) and the subsequent period that begins in the year the child turns 18.

The “growth” period

This is the window in which the account can be opened and funded. Generally, any child under the age of 18 with a Social Security number is eligible for an account. Unlike 529 plans, each beneficiary can only have one active account. In terms of funding, there are a few different ways for dollars to find their way into a 530A account:

1. Individual contributions (i.e. from a parent or grandparent)
2. Employer contributions (such as contributions made by an employer on behalf of an employee’s child)
3. Pilot program contributions from the federal government ($1,000 per child who was born between 1/1/2025 and 12/31/2028)
4. General qualified contributions (tax-free contributions made by certain charities or government entities)
5. Rollover contributions

Contributions, whether made by individuals or an employer, count toward an aggregate annual limit of $5,000 per beneficiary (NOTE: a separate limit of $2,500 per employee applies towards employer contributions). However, general qualified contributions and pilot program contributions do not count toward the $5,000 annual limit, and are therefore theoretically uncapped.

From a tax perspective, things can get complicated relatively quickly with 530A accounts. Ultimately, the tax treatment will be highly dependent on the contribution type in question. Individual contributions, for example, are non-deductible and are considered after-tax gifts. While the growth on these contributions will be subject to ordinary income tax in the future, the contribution itself (or the basis) would be distributed tax-free.

Other sources, such as general qualified contributions and pilot program contributions, are pre-tax when made, and will ultimately be distributed fully at ordinary income tax rates (both the contribution itself and the growth). Given the nuance involved, detailed recordkeeping is essential to ensure tax liabilities are being appropriately planned for.

Once funded, certain investment and access restrictions will apply to the accounts during the growth period. As it relates to investments, 530A accounts must use an eligible investment vehicle, which is generally defined as an ETF or mutual fund that tracks a qualified index and has an expense ratio of less than 0.1%. Outside of very specific situations, withdrawals from accounts are heavily restricted during the growth period.

What happens to my child’s 530A account when they turn 18?

Once a child reaches age 18, the account essentially converts to a Traditional IRA. At that time, the investment universe broadens significantly, and rules and regulations around distributions will mirror those of a standard Traditional IRA. When a child reaches this age of majority, they will receive unrestricted access to the account but may be subject to taxes and penalties on any non-qualified distributions (as indicated by traditional IRA rules and regulations in IRS Publication 590-B).²

Ultimately, whether or not you choose to open and fund a 530A account is highly dependent on your individual goals and circumstances. While some account types may be better suited for education savings (i.e. a 529 account), and others provide greater access and flexibility (i.e. a custodial account), there can often be a place for 530A accounts in your planning matrix. At the very least, access to ‘free’ contributions (through the federal pilot program or, potentially, through employer contributions) is a compelling enough reason to consider these accounts further.

Westmount’s financial planning team is here to help. If you have any questions about 530A accounts or other education funding vehicles, email us at advice@westmount.com, call 310-556-2502, or contact your advisor directly.