I Changed My Mind on Trump Accounts

I wasn't a big fan of Trump Accounts before and I didn't plan on using them for our two boys, but I recently learned something new about them that changed my opinion.

My Old Take

We don't need another way to pass along money or save money for our kids.

• 529s: Molly and I set up 529s for their future college expenses, and for potential K through 12 education costs.

  • If we fund these enough, we could pay for all of their education and potentially jumpstart their Roth IRA, because up to $35,000 can be moved into a Roth IRA for beneficiaries of a 529 given they meet the right requirements.

• Custodial accounts: this money legally becomes the child's at age 18/21 (whenever they become an adult). This money can be used without restriction. If they want to buy a house, a car, start a business, or just splurge and waste the money they can do that because it's theirs legally. Because we don't keep control over this account Molly and I have pushed this down our priority ladder. They are both young so we don't know how responsible they will be later.

• Brokerage Account: we also opened a brokerage account in our names (so we maintain control) that is earmarked for them. This way we still have access to it should we ever need the money, but if our boys have a good reason for needing money, then there is an account that can source those funds.

Other than the 529, the brokerage account in the custodial account don't have great tax advantages. The accounts are invested and will grow, but when we sell the investments and withdraw the funds, capital gains taxes will be owed. Capital gains tax rates right now are actually pretty favorable: 0%, 15%, or 20% depending on your income, so we don't view this as that big of a penalty.

Ultimately, Molly and I have prioritized control of the funds over tax savings.

The reason I didn't like the Trump accounts is because there are restrictions on what you can use the money for.

The Fine Print

It works like a traditional IRA: income tax is owed on the money withdrawn, and potentially a 10% penalty too.

If you take it out for college expenses, a house down payment, or to start a business (starting a business is a pretty vague term, so I anticipate some clearer IRS rules on this down the road) then you pay tax on the money but not a penalty. If you withdraw it for any other reason you pay income taxes, and a 10% penalty.

There have been some articles I've read that pitch the idea of maxing a Trump account for your kid and then when they are an adult and on their own taxes, you convert the money to a Roth IRA. This means you pay the tax in their 20s when they don't have high income, and then it grows tax-free until retirement. I understand this philosophy, but I don't think many people will follow through on step two of converting the money years down the road.

Why Trump Accounts Make Sense for Business Owners

Business owners can write off $2,500 contributed to a Trump account as a business expense. So if you are self-employed or have a business, you can save on taxes and save money for your kid. This moved me over the line. It's not that I didn't want to save money for our children, but I just didn't think we needed another account with restrictions, but now we get an instant tax savings in our pocket by doing this as business owners. So I think every business owner or self-employed individual should take a fresh look at this.

A couple caveats worth knowing here: this works cleanly if you pay yourself W-2 wages, like through an S-corp. If you're a sole proprietor without payroll, the IRS is still finalizing guidance on how this applies to you. Also, the $2,500 limit is per employee, not per child, so it doesn't multiply just because you have more kids. Since Molly and I both work at Alpha, we each have our own $2,500 limit, which means our business can contribute up to $5,000 a year across our boys' accounts.

The $1,000 Head Start

One caveat: I was never going to turn down the free $1,000. Our son who was born in 2026 was already going to have a Trump account, but now I opened one for our two year-old who didn't qualify for the free $1,000.

The App Itself

I found the Trump Accounts app on my phone pretty easy to use. It worked a lot like the Robinhood trading app that I've used in the past. Opening the accounts took a couple days after I filled out the forms, and then linking our bank was pretty easy too. It took a few days to see the money deposited and invested. The investment is an S&P 500 Index fund, so I'm happy with that too.

Time will tell if this account is a pain to manage and navigate or if this is a good tax strategy.

Alpha Financial Management is a fee-only financial planning firm with offices in Savannah, GA, Bluffton, SC, and Alpharetta, GA, helping clients with retirement planning, tax strategy, and wealth management.