Compounding over time is one of the most powerful ways for investors to grow their wealth, and starting this summer, parents will have an additional way to harness 18 years’ worth of it to help their children get ahead. Trump Accounts are expected to launch on July 4, and they offer a new way to save for your kids’ futures. If your child is born between 2025 and 2028, you’ll get $1,000 in seed funding to help them start building wealth. But Trump Accounts are also not the only option when it comes to helping your kids get a strong financial start in life.
In this post, we’ll explain the ins and outs of Trump Accounts and who can likely benefit from them the most. We’ll also compare them to two other popular savings vehicles used by parents: 529 plans and custodial accounts, and walk through how to think about combining them for your unique situation.
Read on or jump ahead to a specific section:
- What are Trump Accounts?
- What are 529 plans?
- What are custodial accounts?
- Major pros and cons of each account type
- How to combine these accounts for your specific needs
What are Trump Accounts?
You can think of Trump Accounts as retirement accounts you can open for your child (or children) under the age of 18, as long as they are US citizens. If their birthday falls between January 1, 2025 and December 31, 2028 then they’ll also be eligible to receive a $1,000 starting investment from the US Treasury. When your child reaches the age of 18, the account becomes a traditional IRA in their name (they can also convert it to a Roth IRA) which they can access without penalties at age 59.5. However, they can also make withdrawals for certain purposes (like education or buying their first home—full list here) before then without incurring penalties. The launch of Trump Accounts marks the first time kids will be able to access their own IRAs without having their own earned income to contribute.
Here are the highlights at a glance:
| Trump Accounts | ||
|---|---|---|
| Who can open one? | What’s the contribution limit? | When does the account transfer to the child? |
| Parents or legal guardians of US citizens under the age of 18 | $5,000 per year | When they turn 18—at that point, it turns into a traditional IRA in their name |
| When and how can the money be used? | Are there tax benefits? | Other considerations |
| At 18, beneficiaries can make withdrawals for qualified expenses like buying a first home or paying for education. Otherwise, it’s available after age 59.5 without penalties. | Yes. Like a traditional IRA, account growth is tax-deferred but withdrawals are taxed as ordinary income. Note: Early unqualified withdrawals may be subject to penalty. | These accounts could impact your child’s financial aid. Investment options are limited to a diversified index fund of US stocks. Withdrawals during the growth phase are generally prohibited (unless rolling over to an ABLE account). |
What are 529 plans?
529 plans are one of the most popular ways to save for a child’s education, and they offer appealing tax advantages. Contributions are tax-deductible in some states, and the only real limit is the gift tax exclusion limit (currently $19,000 in 2026, but this limit can change yearly based on inflation). However, you can get around this limit by “superfunding,” or making up to five years’ worth of contributions at once in order to get the most out of compounding and tax-advantaged growth. Growth and withdrawals are tax-free when used for education.
While 529s are specifically for educational expenses, they can be used to cover more than you might think, including K-12 education, vocational school, and student loans. If you have money left over after your child’s education is paid for, you can change the beneficiary of the account or roll up to $35,000 of what’s left into a Roth IRA for your child.
Here are the highlights at a glance:
| 529 plans | ||
|---|---|---|
| Who can open one? | What’s the contribution limit? | When does the account transfer to the child? |
| Anyone—friends or family, as long as they’re at least 18 years old and a US citizen/legal resident. | There’s no limit, but you should be mindful of the $19,000 annual gift tax exclusion (unless you’re superfunding). | It doesn’t. But leftover funds up to $35,000 can be rolled into a Roth IRA in the child’s name. You can also change the beneficiary. |
| When and how can the money be used? | Are there tax benefits? | Other considerations |
| You can use the money at any time to pay for qualified educational expenses (including K-12, not just college!). | Yes. Contributions may be tax-deductible in some states. Growth and withdrawals are tax-free. | You can maximize your 529 by superfunding with up to five years’ worth of contributions (up to the gift tax limit) at once. |
What are custodial accounts?
Custodial accounts, a category that includes Uniform Transfer to Minors Act (UTMA) accounts and Uniform Gift to Minors Act (UGMA) accounts, offer a way to set aside money for your child that becomes theirs after they hit the age of transfer (this is commonly on their 18th birthday but can happen later depending on the state). Many parents treat them as an opportunity to teach their kids about investing from a young age, a kind of launchpad for what will eventually help them continue to invest in the future. These accounts are far more flexible than a 529 or a Trump Account in terms of what you can use them for. They have no contribution limits, and offer more investment options than Trump Accounts (which is arguably better for teaching young investors about diversification). As of 2026, the first $1,350 in dividends, interest, and capital gains realized in the account are tax-free each year and the next $1,350 are taxed at your child’s rate. Any annual dividends, interest, and realized capital gains over $2,700 are taxed at your tax rate—this is known as the Kiddie Tax, and limits can change annually based on inflation.
Here are the highlights at a glance:
| Custodial accounts | ||
|---|---|---|
| Who can open one? | What’s the contribution limit? | When does the account transfer to the child? |
| Anyone—friends or family, as long as they’re at least 18 years old and a US citizen/legal resident. | There’s no limit, but you should be mindful of the $19,000 annual gift tax exclusion. | At the age of transfer—usually 18 or 21, based on the state the account is established in. |
| When and how can the money be used? | Are there tax benefits? | Other considerations |
| You can use the funds before the age of transfer as long as it’s for the child’s benefit (but can’t be used for food, shelter, or other parental obligations). After the age of transfer, funds can be used for anything. | Yes, but they’re limited by the Kiddie Tax. | These accounts could impact eligibility for financial aid and may impact their parents tax filing. (Note: You may want to speak to a tax professional.) |
Trump Accounts, 529 plans, and custodial accounts: Which is right for you?
First and foremost, you should know you don’t need to pick a single account type. You can mix and match accounts to meet your family’s unique needs.
Here’s a breakdown of some key considerations.
| Should you open a Trump Account, 529 plan, and/or a custodial account? | ||
|---|---|---|
| When to use a Trump Account | When to use a 529 plan | When to use a custodial account (UGMA or UTMA) |
| If you have children born between January 1, 2025 and December 31, 2028 who are eligible for the $1,000 in seed funding—it’s basically free money If you receive employer matching or “qualified general contributions” If you are eager to help your kids plan for retirement | If your main goal is to save for educational expenses If you might want to use the money for education for other family members, too If you want to avoid gifting your child a large lump sum at the age of majority If you plan to superfund to take advantage of compounding | If you want to teach your kids about investing with more investment options than a Trump Account If you anticipate wanting to gift your child money for expenses other than just education |
| When not to use a Trump Account | When not to use a 529 plan | When not to use a custodial account (UGMA or UTMA) |
| If your child might need the money before retirement—especially before age 18 If you want a wide range of investment options If your child has earned income, in which case they’re likely better off with a Roth IRA | If you think you’ll want to use the money for something other than qualified educational expenses If you are trying to maximize the amount your children can receive in financial aid from college | If you might need to withdraw the money early for housing or food for your child If you’re in a high tax bracket and are trying to pass a large sum of money to your kid(s) |
There’s no one-size-fits-all approach. Some people will want to maximize the amount of money they set aside for their kid(s), while others will prefer to focus on the low-hanging fruit. Others still will fall somewhere in the middle. Here’s what each approach could look like.
The “low-hanging fruit” approach
In some ways, getting the $1,000 in seed money for your child’s Trump Account is like getting your 401(k) match—it’s basically free money, and it makes sense to take advantage of it if you can. That means if you are the parent or legal guardian of a child born from 2025 to 2028, you should strongly consider opening a Trump Account for the purpose of getting the $1,000 to invest for your child.
Assuming 5% annual growth over 18 years, and ignoring the impact of any fees or taxes, that $1,000 could be worth $2,407 by the time your child gains control of the account, even if you never contribute another dollar. The same $1,000 could grow to $18,679 if it keeps compounding until they reach age 60, when they can withdraw from the account without penalties. If your child contributed just $1,000 of earned income each year after age 18 (which is a very conservative assumption given that $1,000 is well below current IRA contribution limits), the account could be worth $152,911 by the time they reach retirement.
Beyond that, it could also make sense to open a 529 or custodial account, depending on whether you want to save for your child’s education or you’d rather set up a more flexible account that eventually becomes theirs.
The “maximizer” approach
If you’re looking to set aside as much as possible for your kids across all of these accounts, here’s our starting framework:
- Start with the low-hanging fruit and get the Trump Account seed funding: If your child qualifies for the $1,000 in seed funding, open a Trump Account and get it. As we showed above, even this one action can be very powerful.
- Open a 529 plan and consider superfunding: If you are fairly confident your kid(s) will have educational expenses to pay for in their lifetimes, it’s reasonable to open a 529 plan—the tax-free growth can really add up. If you put $5,000 into a 529 each year with an assumed 5% annual rate of return and let it grow and compound until your child started college 18 years later, then they could have $147,695 for tuition right off the bat. If you wanted to do even more to help with educational expenses, you could consider superfunding—or making five years’ worth of the maximum contributions up to the gift tax exemption ($19,000 as of 2026 multiplied by five years) at once. If you and your spouse did this, your child could have a nest egg of $457,258 when they started college. And remember, qualified withdrawals are tax-free.
Any leftover money in the account could then be directed to another beneficiary (a sibling, a favorite niece or nephew) or rolled over to a Roth IRA in the child’s name (up to $35,000). 529s can be extremely useful tools for saving for educational expenses—the key is only using 529s for money for that purpose, otherwise you could end up paying penalties. If you think your child might not have educational expenses to cover, then skip right to the step below.
- Open a custodial account for costs your child might incur as an adult and milestones along the way: It’s common for parents to want to help their children with their finances in adulthood, whether that means setting them up with their first brokerage account or contributing to large expenses like the down payment on a first home or even a car. You might also want to pay for items like a first computer or summer camp even before your child turns 18. Custodial accounts are a flexible, tax-advantaged way to do that. If you’ve gotten the $1,000 in Trump Account seed money, contributed an amount that makes sense to a 529 plan (which will depend on your kid(s) and how much education you think they’ll want or need to pay for), you might consider contributing additional money to a custodial account to help accomplish these goals.
Just remember the Kiddie Tax limitations we described above. If you assume your account’s annual dividends and interest are about 2%, that means you could stay under the $2,700 threshold as long as your account value didn’t grow beyond about $135,000 and you didn’t realize any additional capital gains in the account. For that reason, custodial accounts are likely not the right vehicle for passing very large sums of money to your child (ie, more than $135,000), at least not if you want to minimize your own taxes. If you have questions about how to do that, we suggest speaking with a tax advisor. Up your contributions to your child’s Trump Account: Your child’s retirement is a long time away, but if you still want to do more for them after funding a custodial account, you might consider maxing out your contributions to their Trump Account (which again, is essentially an IRA). Contributing the $5,000 maximum every year for 18 years after receiving the $1,000 in seed funding could mean, assuming an 5% annual rate of return, your child has $1,203,835 in their IRA when they reach age 60 even if they make no additional contributions in adulthood.
The middle ground approach
Many people will fall somewhere in between the two situations described above in terms of their approach. The right way to think about your specific plan is to decide what you care most about helping your child achieve financially (education without student loans, secure retirement, flexible financial buffer in adulthood) and pick the account(s) that align with those goals. Generally, you’ll notice there’s a tradeoff between tax advantages and flexibility. Your perfect mix of accounts doesn’t necessarily look like anyone else’s—it’s all about personal preference and your tax situation (and for that reason, it can be helpful to consult a tax advisor about this, too).
Take advantage of compounding to help your kids reach their goals
Trump Accounts, 529 plans, and custodial accounts all have the same super power: They help you set money aside very early for your child so the funds have a long time to grow and compound. There’s a reason compounding is sometimes called the “eighth wonder of the world” — with a long-enough time horizon, it can transform even a relatively modest sum of money into something life-changing. And when you’re thinking about how best to support your kid(s) and their long-term financial health, that’s incredibly powerful.
Disclosure
Investment management and advisory services are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and brokerage related products are provided by Wealthfront Brokerage LLC (“Wealthfront Brokerage”), a Member of FINRA/SIPC. Financial planning tools are provided by Wealthfront Software LLC (“Wealthfront Software”).
The information contained in this communication is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as a solicitation, offer, or recommendation, to buy or sell any security. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Wealthfront Advisers or its affiliates endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.
Trump Accounts involve financial risks and structural limitations. Capital is restricted to low fee US index funds or ETFs, which limits asset allocation flexibility and prevents customization. All funds in the account are illiquid and are generally locked with no early withdrawal options until the child reaches age 18. Upon adulthood, the mandatory conversion to a Traditional IRA subjects the capital to retirement regulations; consequently, distributions before age 59½ may trigger penalties and ordinary income taxes. Furthermore, these accounts may be subject to political and regulatory risks that could alter tax advantages, match structures, or program rules through future congressional actions or policy shifts.
Custodial accounts (UGMA/UTMA) come with significant limitations. Contributions to a custodial account are irrevocable gifts, meaning once assets are moved into these accounts, they belong to the minor and cannot be reclaimed by the donor for any reason. You also can’t rename the beneficiary or use the assets for another person. Custodians have a fiduciary duty to use funds exclusively for the minor’s benefit. Legal control of the assets automatically transfers to the beneficiary upon reaching the age of termination (typically 18 to 25, depending on the state), at which point they may use the funds for any purpose, regardless of the custodian’’s original intent. These accounts can also negatively impact financial aid eligibility because the assets are owned by the child. They are weighted more heavily than parental assets in financial aid formulas, which may significantly reduce eligibility for need-based financial aid.
From a tax perspective, these accounts are not tax-deferred; they are subject to “Kiddie Tax” on unearned income above certain thresholds. For the 2026 tax year, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s marginal rate, and any amount over $2,700 is taxed at the parents’ marginal rate. Contributions must adhere to federal gift tax rules ($19,000 for individuals or $38,000 for a married couple in 2026). Any contributions over the gift tax exclusion may be subject to gift tax. Keep in mind, these figures can change. Wealthfront Advisers and affiliates do not provide legal or tax advice and are not liable for tax consequences of client transactions. Please consult a personal tax advisor regarding your individual situation.
You should consult your financial, tax, or other advisor to learn more about how state-based benefits (or any limitations) would apply to your specific circumstances before investing in a 529 plan. You also may wish to directly contact your home state’s 529 plan(s), or any other 529 plan, to learn more about those plans’ features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision. Earnings on nonqualified withdrawals are subject to federal income tax and may be subject to a 10 percent federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.
The growth calculations presented in this material are for illustrative purposes only, and do not represent the actual performance of any specific investment, account, or strategy. These mathematical illustrations assume a constant, compounded annual rate of 5% and that all earnings are reinvested. The calculations assume a starting age of 0, control of the account transferring at 18, and retirement at age 60. These projections do not reflect the deduction of fees, commissions, taxes, or transaction costs, which could significantly reduce the illustrated values over time. Projections are also not adjusted for inflation and the future purchasing power of these illustrated amounts may be significantly less than it is today.
Wealthfront Advisers and its affiliates do not provide legal or tax advice and do not assume any liability for the tax consequences of any client transaction. Clients should consult with their personal tax advisors regarding the tax consequences of investing with Wealthfront Advisers and engaging in these tax strategies, based on their particular circumstances. Clients and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the investor’s personal tax returns. Wealthfront Advisers assumes no responsibility for the tax consequences to any investor of any transaction.
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About the author(s)
Alex Michalka, Ph.D, has led Wealthfront’s investment research team since 2019. Prior to Wealthfront, Alex held quantitative research positions at AQR Capital Management and The Climate Corporation. Alex holds a B.A. in Applied Mathematics from the University of California, Berkeley, and a Ph.D. in Operations Research from Columbia University. View all posts by Alex Michalka, Ph.D
