Trump Accounts (Section 530A): Why Every Child Should Have One

A Trump Account is a new type of traditional IRA established exclusively for the benefit of an eligible child. To qualify, the child must have a Social Security number and must not turn 18 before December 31 of the year the account is opened. Each child may have only one Trump Account.

Here are the core rules at a glance:

• Annual contribution limit: Up to $5,000 per year (indexed for inflation after 2027), combined across all contributors: parents, grandparents, other family members, and even employers.
• No earned income required: Unlike a Roth IRA for minors, contributions to a Trump Account do not require the child to have earned income.
• Non-deductible contributions: Contributions are made with after-tax dollars and do not provide an upfront tax deduction.
• Government seed money: Children born between January 1, 2025 and December 31, 2028 are eligible for a one-time $1,000 contribution from the US Treasury. This does not count against the $5,000 annual limit.
• Employer contributions: Employers may contribute up to $2,500 per year to an employee’s dependent’s Trump Account, which counts toward the $5,000 cap. Be sure to confirm whether your employer will be setting up a plan.
• Growth period: The account operates under special rules until January 1 of the year the child turns 18, after which it transitions to a standard traditional IRA.

During the growth period, the account grows tax-deferred. When funds are eventually withdrawn — or converted to a Roth IRA — any amount that exceeds the after-tax basis (total contribution amount) will be taxable as ordinary income. This is probably a better option for savings for kids than any account except for a 529 (given that the growth in 529s is tax-free without any conversion).

Important State Tax Considerations

While Trump Accounts receive favorable federal tax treatment, some states have indicated they will not recognize the account as a traditional IRA and will tax the earnings annually. Affected states currently include California, Hawaii, Kentucky, Massachusetts, Pennsylvania, South Carolina, and Wisconsin. Families in these states should consult a tax professional to understand the potential impact on their specific situation.

The headline opportunity with Trump Accounts is not simply tax-deferred growth — it is the ability to convert the account to a Roth IRA, ideally at a moment when the young adult is in their lowest lifetime tax bracket. Once converted, the account grows entirely tax-free, qualified withdrawals in retirement are tax-free, and there are no required minimum distributions (RMDs) during the owner’s lifetime. For a 22-year-old with 40+ years of compounding ahead of them, the mathematical advantage of a Roth conversion can be significant.

However, families must be aware of one critical pitfall: the “Kiddie Tax.”

The Kiddie Tax is a federal rule that taxes unearned income (dividends, interest, capital gains — and yes, Roth conversions) for dependent children at their parents’ marginal tax rate, not the child’s own rate. In 2026, the Kiddie Tax applies to unearned income above $2,700 per year for dependents under age 18 and for full-time students under age 24. Since a Roth conversion is taxed as ordinary income — not at the lower capital gains rate — this can result in a significant and unexpected tax bill for families in higher brackets.

The strategic implication: timing matters enormously. The most tax-efficient moment to execute a Roth conversion is typically after the child is no longer a full-time student and is no longer claimed as a dependent — generally age 24 or later, assuming they remain a student, or sooner once they have a full-time job.

Let’s consider a child who is 9 years old as of July 2026. Starting July 4, 2026, when contributions first became permitted, the parents open a Trump Account and contribute $5,000 per year through 2034, when the child turns 17 at the year-end, for a total of nine contributions totaling $45,000. No further contributions are permitted starting in 2035 while the child attends college. In 2039, after graduating college and beginning a full-time job, the child is no longer subject to the “Kiddie Tax” and can execute a full Roth conversion.

Assuming average annual growth of 8%, by 2039, the account will have grown to $91,742 with a basis of $45,000. Here is where the strategy comes into focus. The child earns a reasonable starting salary and is in the 22% federal tax bracket. The child then completes the conversion and realizes $46,742 ($91,742–$45,000) of ordinary income. At 22%, the child would owe $10,283 in additional taxes, which the parents can choose to gift, as it is well below the annual gift exemption of $19,000 per person. And from that point forward, every dollar in that Roth IRA grows tax-free for the rest of their life.

For a total investment of $45,000 in contributions plus a $10,283 tax payment equating to $55,283, the parents have helped the child create a tax-free Roth IRA, which would on its own grow to $2.5 million fully tax-free when the child is 65, assuming an 8% growth rate annually — powerful indeed.

Accounts will initially be opened through the Trump Account website  (https://trumpaccount.com/), which will then be custodied at Bank of New York Mellon (BNY) in partnership with Robinhood. Once funded, the account can be transferred via a direct rollover to another IRA custodian of your choice; however, that option is currently not available.

Opening a Trump Account requires filing IRS Form 4547. This form serves as the formal election to establish the account. Here is the process:

• File Form 4547 either with your 2025 federal tax return or separately. If filing separately, you will need to create an account with ID.me in order to submit the form via the IRS online portal https://www.irs.gov/payments/online-account-for-individuals.
• A legal guardian, parent, adult sibling, or grandparent (listed in priority order by law) may open the account on the child’s behalf.
• The child must have a Social Security number.
• Contributions are made by funding via bank account or debit card through the Plaid account aggregation service. For family and friends who want to give, there is a gift link that can be sent to them as well.
• The default investment is the ETF SPYM with a 0.02% expense ratio that tracks the S&P 500.

During the growth period, Trump Account investments are restricted to mutual funds or ETFs that track a qualifying index of primarily US companies. This means this is not the place for individual stocks, international funds, bonds, or alternatives during childhood — it is intentionally oriented toward broad US equity exposure.

Assuming that at some later date the default investment can be changed, our preferences for Trump Account investments are:

• DFUS (Dimensional US Equity ETF) — Our primary recommendation. DFUS provides broad, diversified US equity exposure without the inefficiencies that can arise from index reconstitution and other small inefficiencies of indexing. It combines Dimensional’s evidence-based investment philosophy with the tax efficiency and liquidity of an ETF structure.
• VTI (Vanguard Total Stock Market ETF) — A strong, low-cost alternative covering the entire US equity market in a single fund.

Given the decades-long time horizon, the goal is simple: maximize broad US equity exposure, keep costs minimal, and let compound growth do the work. Once the account converts to a standard IRA at age 18 — and ultimately to a Roth IRA — the investment universe opens up considerably, and the allocation can be tailored to the young adult’s full financial picture.

Trump (Section 530A) Accounts represent a compelling new tool for families with children, particularly when paired with a disciplined Roth conversion strategy. The combination of early, consistent contributions, broad US equity exposure, and a well-timed Roth conversion may help build a lifetime of tax-free wealth for your child or grandchild.

We encourage you to reach out to your Forum advisor to discuss whether and how a Trump Account fits into your family’s financial plan.

We are here to help you take advantage of every opportunity to build and protect your family’s financial future.