Did someone say free money? Yes! And if your child qualifies, opening a Trump account is a no-brainer. What if they don’t qualify for the free money? Is that still the best place to save?
Spoiler: It depends. Let’s look at your options.
The One Big Beautiful Bill Act created a new retirement investment account for kids under 18. You can think of it as being like a Traditional IRA, but without the requirement for the child to have qualifying income. Additionally, children born between January 1, 2025 and December 31, 2028 will get $1000 from the government when they open Trump account. Some private donors have also indicated they will also fund initial deposits for some other children.
I’m always a fan of free money so if your child qualifies, it makes sense. For others, there might be better ways to save based on your goals.
Trump Account Overview
- Must be opened before a child turns 18
- Contributions limited to $5,000 per year before the year they turn 18
- Contributions are made with after tax dollars, but grow tax free
- Employers can contribute up to $2,500 per year and these contributions don’t count as taxable income to the parent or student.
- Investments in eligible mutual funds and Exchange Trade Funds (specific details aren’t available at this time)
Withdrawals
In general, withdrawals may not be taken from Trump Accounts. Once the child turns 18, the account will need to be converted to a Traditional IRA. At that point, Traditional IRA withdrawal rules will apply.
The accounts will most likely have a mix of both after-tax contributions and pre-tax funds (earnings, tax-free charitable or employer contributions) withdrawals will be taxed in proportion to these amounts. Additionally, withdrawals taken before 59 ½ will be subject to a 10% penalty unless they meet a qualifying exception.
Conversion to a Roth IRA
Depending on the size of the Trump account and the mix of pre-tax and after-tax dollars, it could make sense to convert the account to a Roth IRA once they turn 18. Most 18- year-olds don’t have a significant amount of income so their tax rate may be very low or even 0. Converting would allow the account to continue to grow and be withdrawn tax free (subject to Roth IRA withdrawal rules).
The Questions To Ask First
There are no shortages of ways to save and invest for your children’s future. It really depends on what your goals are and how and when you believe the children will use the money. Here are three questions to shape your decision:
- What is the money for…Future education, a head-start in life, a future house down payment, their ultimate retirement?
- How much control do you want in the future?
- How much are you planning to give them?
529 Plans – If education is the goal, 529s are hard beat. Tax-free growth and withdrawals for qualifying education expenses. Many states also offer tax breaks for contributions. This may be less of a factor for military depending on your state of residence and whether you’re actually paying state taxes while on active duty. It is something to consider after retirement or separation. Secure 2.0 also introduced the ability to roll unused 529 funds into a Roth IRA for the beneficiary subject to some limitations.
Pros:
- Tax-free growth and tax-free withdrawals for qualified education expenses
- Many states offer a tax deduction for contributions
- High contribution limits
- SECURE 2.0 allows rolling unused funds (up to $35,000) into a Roth IRA for the beneficiary after 15 years
- Beneficiary can be changed to another family member which is useful if one kid gets a scholarship or doesn’t go to college
- Minimal impact on financial aid compared to other accounts
Cons:
- Withdrawals for non-education expenses are taxed plus a 10% penalty
- State tax deductions may only apply to your home state’s plan
- Many military members don’t pay state taxes while on active duty
- Limited to investment options of the plan you choose
UTMA/UGMA Accounts – These accounts provide the most flexibility for investments, but the money is your child’s once the account is funded and can’t be taken back. You manage it until 18, 21, 25 (depending on state law), but at that point they can do whatever they want with the money.
Pros:
- No restrictions on how the money is used – college, car, house, anything
- No contribution limits
- Simple to open and manage
- Can hold a wide range of assets – stocks, bonds, ETFs, even real estate in some cases
Cons:
- No tax advantages – gains are taxed, and the “kiddie tax” can apply, meaning above a threshold the gains are taxed at the parent’s rate
- Once the child hits the age of majority it’s legally their money
- Counts as a child asset for financial aid so less ideal for saving for education
Roth IRA –Once your child has earned income, they can open and fund a Roth IRA.
It’s subject to standard annual limit or what they earned, whichever is lower. The takeaway here is the funding doesn’t have to come from your child’s actual earnings.
I knew my daughter didn’t want to work and put all her money into an IRA. She was making only a few thousand dollars working at a bookstore and doing some work for me. So, I funded her Roth account. This money will have 40+ years to compound tax- free. Do this and your kids will surely thank you in the future.
Pros:
- Tax-free growth and tax-free withdrawals in retirement. The time horizon here is extraordinary
- Contributions (not earnings) can be withdrawn anytime penalty-free, giving some flexibility
- Teaches the concept of investing early and connects work to wealth-building
- The power of an extra 5-10 years of compounding is fantastic
Cons:
- Requires earned income. Your child has to actually have a job, and contributions can’t exceed what they earned that year
- Low earning years mean low contribution limits in practice
- Doesn’t help with shorter-term goals like college or a first car
- Parents can’t contribute on the child’s behalf beyond what the child earned — no workarounds
- It’s their money at 18 so they could take all the money out of the account
Parent-Owned Brokerage Account (Gifted Later) – Using a parent-owned taxable brokerage account as a savings and investment vehicle for your child is another option.
This could be done by opening a separate account or just in a brokerage account you have. This option give you the maximum flexibility. It can be gifted in the future for education, house down payment, to help a child start a business. It can also be used for your own needs if something changes in your situation.
Pros:
- Complete parental control. You decide when and if to transfer, and under what conditions
- No restrictions on investments or withdrawals
- Flexible. You can redirect the money if life changes
- Can be a meaningful estate planning tool
- No age-of-majority forced transfer — you gift it on your timeline
Cons:
- No tax advantages — dividends and capital gains are taxed at your rate annually
- Gifting large amounts (over $19,000 per person per year in 2026) may trigger gift tax reporting – not tax, just reporting
- Capital gains at the time of gifting can be a tax event depending on how it’s structured
- Requires discipline to actually earmark and protect the money from other financial pressures over the years
Trump Accounts – Described above
Pros:
- $1,000 government seed money — genuinely free
- Forces early investing habit
- Tax-advantaged growth
- Simple, set-it-and-forget-it structure
Cons:
- U.S. stocks only — concentration risk and no international diversification
- Completely illiquid until age 18 with no exceptions
- Implementation details still unclear — program could change
- $5,000/year contribution limit is lower than other options
- No flexibility on purpose — unlike a 529 rollover or Roth, you can’t redirect this money
So What’s Best?
A few thoughts. If you’re eligible for free money for a Trump account, take it. That could be the $1,000 in seed money from the government, matching from an employer, or funding from a donor. Taking free money is always a good move.
If you’re saving for education, the 529 is a great option especially if you get a tax break.
You keep control and the Roth transfer option and ability to change beneficiaries is great. If your child gets scholarships or maybe attends a service academy, you can take out the money without the penalty. You’ll still pay tax on the earnings, but you got tax free growth so it’s better than the taxable brokerage account.
If you want maximum flexibility, the taxable brokerage account in your name is the best.
Yes, you’ll pay taxes on capital gains and dividends each year but those are lower than your marginal tax rates. Also if you’re not buying and selling all the time or in an income-producing investment, those taxes are likely to be relatively small. You also have some flexibility on whether you or your child the taxes in the future.
You don’t have to pick just one type of account. Stack them intentionally. Get the free Trump account money if you qualify, use a 529 if education is the goal, and open a Roth as soon as they have earned income. I don’t know exactly what my daughter will do with the money in her Roth IRA in the future. But, she’ll have some options. Whatever account you choose, you’re giving your kids a head start.
Have questions about saving for your children’s future or your own? The advisors at MFAA can probably help. Check them out here.
