Knowledge and Insights

A CLIENT ADVISORY FROM OUR TAX DEPARTMENT

Trump accounts are a recently introduced federal child savings vehicle designed to help families begin retirement-oriented investing during childhood. For high-net-worth families, we recommend viewing these accounts as a complement to 529 plans, trusts, or other advanced estate planning strategies – not as a replacement. They serve as a targeted, tax deferred “retirement starter” account that can complement a broader family wealth plan when integrated thoughtfully.

Under IRC Section 530A, a Trump account may generally be established for a child who has not reached age 18 before the end of the calendar year in which the account election is made and who has a Social Security number issued before the election date. A separate one-time federal $1,000 seed contribution is available for certain qualifying U.S. citizen children born after December 31, 2024, and before January 1, 2029, once the required election and account requirements are satisfied. It is important to note that citizenship is specifically tied to the federal seed contribution, while the general account eligibility rules focus on age and Social Security number requirements.

For our clients, the main appeal of the Trump Accounts is the ability to begin compounding retirement savings for a child or grandchild before that child has earned income. Annual family contributions made before the year the child turns 18 are not tax-deductible, and aggregate nonexempt contributions are limited to $5,000 per year, indexed after 2027. Certain contributions, including the federal seed contribution, qualified rollovers, and qualifying governmental or charitable contributions, do not count against that annual cap.

WHY THIS MATTERS FOR HIGH-NET-WORTH FAMILIES

The greatest benefit of a Trump account is time. A contribution made in infancy has decades to compound before retirement age. That long investment runway can be particularly valuable for families who are already funding education, making annual exclusion gifts, and implementing trust-based estate plans. Additionally, the account offers a practical way to introduce a child or grandchild to long-term investing, retirement discipline, and the family’s broader financial values.

The limitations are equally important. The annual contribution limit is modest relative to the planning capacity of affluent families. Distributions are generally not permitted before the first day of the calendar year in which the child turns 18, except in limited circumstances such as certain rollovers, correction of excess contributions, death, or a full-balance ABLE rollover in the year the child turns 17. Investment options are also restricted during the child’s minority, generally to low-cost mutual funds or exchange traded funds tracking a qualified index.

Once the child reaches the year age 18 is attained, the account generally transitions into traditional IRA treatment. At that point, the child has significantly more control over the account, standard IRA tax rules apply, and distributions are generally taxable to the extent they exceed account basis. This transition presents a planning opportunity, but also a governance consideration. Families that are concerned about control, spending discipline, or creditor and divorce exposure should coordinate Trump accounts with broader trust and estate planning to mitigate risks.

THE ROTH CONVERSION OPPORTUNITY AT AGE 18

One of the most important planning features is the potential for a Roth conversion after the account enters the regular IRA regime. Trump accounts themselves cannot be Roth IRAs during the child account period. However, after the growth period ends and the account is treated under traditional IRA rules, the child may generally be able to convert the account to a Roth IRA. A Roth conversion would typically cause taxable income in the year of conversion to the extent the converted amount exceeds basis. That said, age 18 may be an unusually attractive time to evaluate a conversion because the child may be in a relatively low-income tax bracket. A properly timed conversion could move future appreciation into a Roth IRA environment, where growth and qualified distributions may ultimately be tax-free if Roth requirements are satisfied. The conversion itself generally avoids the 10% early distribution penalty, although withdrawals of converted amounts within five years can create penalty issues, which should be reviewed carefully before any conversion is implemented.

A SIMPLE ILLUSTRATION

Assume a U.S. citizen child is born in 2025 and qualifies for the one-time $1,000 federal seed contribution. Further assume the family contributes $5,000 per year beginning in 2026 and continuing through the year before the child turns 18, and that the account earns a conservative 5% annual return. Using rounded estimates and assuming contributions are invested consistently over time, the account could be worth approximately $135,000 to $140,000 around age 18. This is not a formal projection, but it illustrates the power of early compounding from a relatively modest annual funding commitment. If the child leaves the account invested under traditional IRA treatment until age 60 and the account continues earning 5% annually, that age-18 balance could grow to approximately $1.1 million before taxes. Future distributions from the traditional IRA would generally be taxable as ordinary income to the extent they exceed basis. Alternatively, if the child converts the account to a Roth IRA at age 18, the conversion would generally be taxable in that year, but future Roth growth could potentially accumulate tax free and be withdrawn tax-free if Roth rules are met. For a child with little or no other taxable income at age 18, the Roth conversion analysis may be one of the most valuable planning conversations connected to these accounts.

TRUMP ACCOUNTS VERSUS 529 PLANS

Trump accounts and 529 plans serve different purposes, and in most cases we expect them to work together rather than compete. A 529 plan is primarily an education funding vehicle. A Trump account is primarily a retirement savings vehicle for the child. That distinction should drive the planning conversation. The contribution capacity is higher for 529 plans, which generally allow much larger practical funding subject to state plan limits and gift tax planning. Tax treatment also differs: 529 plan earnings can be withdrawn tax-free when used for qualified education expenses, while Trump account earnings are tax-deferred and later taxed under IRA rules unless a Roth conversion strategy is used. Control is another distinguishing factor. A 529 account owner can often retain control, change beneficiaries, and manage timing, while a Trump account ultimately becomes the child’s IRA. Estate planning flexibility is more robust in 529 plans, which offer annual exclusion and five-year front-loading strategies, while Trump account gifts may qualify for annual exclusion treatment only when the applicable safe harbor and gift tax requirements are satisfied. For these reasons, we generally would not recommend reducing a well-designed education funding plan in order to fund a Trump account. For many families, the better approach is to continue using 529 plans for education and add Trump account funding as a retirement “kicker” for children or grandchildren.

ESTATE AND GIFT PLANNING CONSIDERATIONS

Trump account contributions by parents, grandparents, and others are gifts to the child and should be coordinated with the family’s annual exclusion gifting program. Current IRS guidance provides a safe harbor under which qualifying cash contributions during the growth period may be treated as completed gifts of present interests eligible for the annual gift tax exclusion, provided all safe harbor requirements are met. If the requirements are not satisfied, the contributions may be treated as future-interest gifts requiring gift tax reporting.

For high-net-worth families, this means Trump accounts should be included in the annual gift matrix along with outright gifts, trust gifts, tuition payments, medical payments, 529 contributions, and other transfers. The account is not a separate gift tax exclusion, but rather another tool within the same coordinated planning framework.

Closely held business owners should also consider whether an employer contribution program is appropriate. Employer contributions may be excluded from employee income up to the statutory limit if made under a qualifying written program that satisfies applicable nondiscrimination-style requirements. This option may be attractive in the right business, but it should not be implemented casually. Payroll, employee benefits, ownership structure, and related-party issues all need to be reviewed before adoption.

OUR PLANNING PERSPECTIVE

Trump accounts are best viewed as a modest but meaningful intergenerational planning tool. The Trump account advantages include early compounding, tax-deferred growth, a potential government seed contribution for eligible children, and a valuable Roth conversion opportunity at age 18. The limitations include the relatively low contribution cap, limited pre-18 access, restricted investment options during minority, and reduced parental control once the account becomes the child’s IRA. When used properly, a Trump account can add another layer to a family’s education, retirement, and estate planning strategy. The best candidates are families already funding 529 plans appropriately, making coordinated annual exclusion gifts, and looking for a simple way to give the next generation a head start on retirement savings. As with most planning opportunities, the value is not just in opening the account, but in coordinating the account with the family’s broader tax, estate, and investment plan.

If you would like to discuss how Trump Accounts may fit into your family’s comprehensive planning strategy, please contact our office. We are available to assist with eligibility review, contribution optimization, Roth conversion analysis, and integration with your overall wealth transfer plan. We look forward to helping you leverage this new opportunity for your family’s future.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.