When to fund a 530A IRA (Trump Account) for your kid, grandchild, or young loved one

When to fund a 530A IRA (Trump Account) for your kid, grandchild, or young loved one

The One Big Beautiful Bill Act of 2025 created a new investment account specifically for children: the 530A IRA, more commonly called the Trump Account. You can find the technical details about the accounts here. What I want to cover is when it makes sense to fund a Trump Account for your kid, grandchild, or young loved one under the age of 18?

THE NON-NEGOTIABLE

If your child is eligible for the free $1,000 government pilot program, or there is a chance they qualify for the $250 philanthropist seed funding, apply for an account. You can find more details on both programs and how to sign up for an account here.

If your employer will fund the account, set one up.

In general, free money that has an opportunity to grow and compound is not something you want to turn down.

You have a lot of investment options for future generations

You can use a 529 plan, a custodial Roth IRA, a UTMA/UGMA, or a brokerage account in your own name that you have mentally earmarked for your kids. Each option has different tax consequences, ownership rules, and investment choices. Now we have a Trump Account to add into the mix.

Before choosing an account type, answer these three questions:

• Why (for what purpose) are you saving the money?

• Who should control the money, and for how long?

• What are the tax consequences?

QUESTION #1: Why are you saving the money?

The answer to “why” often determines the best account type before we ever get to tax implications or investment options.

Wanting to put money back and make it tied to education? A 529 plan fits.

Wanting to put money back and invest it for their future with flexibility for expenses before age 18, such as a car, but let them use the funds as they see fit after they reach adulthood? Consider a UTMA/UGMA account. Once they reach the applicable age of majority, they can use the funds as they see fit.

Looking to invest for the long run and pre-fund their retirement? We have two options. Do they have earned income? If so, fund a custodial Roth IRA. If they do not, fund a Trump Account. If they have earned income, but not enough to cover the full amount you want to save for them, fund the custodial Roth IRA first. Then use the Trump Account for the amount above their earned income.

QUESTION #2: Who should control the money, and for how long?

Once you have an idea of the account type, make sure it fits your desired level of control. Depending on the account type, you, as the grantor (giver of the money), can maintain control the entire time or for a limited period before it shifts to the child at a defined age.

• I want to maintain control

Great! This means you can repurpose the funds later if you no longer want to use the money for your kid, grandchild, or young loved one. In a 529 plan, you maintain control of the funds, and you can change the beneficiary at any time. If one child does not go down an eligible education path, you can change the beneficiary and use the funds for someone else. If you want maximum flexibility, open a brokerage account in your own name that you mentally earmark for the child. You maintain full control over investments and disbursements. The account is 100% yours to use as you see fit.

• I want control for a limited time

Great! This usually means control of the funds, investments, and distributions moves from you to the child at the applicable age. For the Trump Account, this happens the year they turn 18. For a UTMA/UGMA, it depends on the state’s age of majority. In Texas, that is age 21. On a UGMA/UTMA, before the child reaches this age, anyone can serve as the custodian on the account and must act in the best interest of the child. Trump Accounts have a specific order on who can serve as custodian: Legal Guardian, Parent, Grandparent, then other. That means a grandparent who is not the legal guardian of the grandchild could not serve as the custodian of the Trump Account.

You should see a pattern here that should simplify the decision. For parents, a Trump Account may feel restrictive because the funds are largely inaccessible for the expenses that arise while raising a child. If you want flexibility, whether that’s for education, transportation, housing, or other life events, the Trump Account does not make sense. It is best seen as funding your child’s future retirement, not funding their future expenses while they are a part of your household.

Grandparents may view the account differently. If you are looking further down the road, the account becomes a viable way to transfer wealth to a younger generation while giving those dollars decades to compound. In that sense, the Trump Account can function more as a long-term wealth transfer tool than a savings vehicle for future childhood expenses.

QUESTION #3: What are the tax consequences?

Ah, taxes. The government needs a way to service the debt, doesn’t it?

This is the final layer to consider. Who pays the taxes and when?

Brokerage account in your name – you pay the taxes on the gains and losses, dividends, interest, and account activity during the year.

529 – if used for educational purposes as defined by the IRS (see more here), then distributions are tax free. If used for non-educational purposes, gains are taxed as ordinary income and may be subject to a 10% penalty. This tax can fall on either the beneficiary or the account owner, depending on who receives the distribution. You cannot separate basis from growth. Distributions are pro-rata between basis and growth.

Custodial Roth IRA – Tax-free growth, tax-free withdrawals of contributions, tax-free withdrawals of gains after age 59 1/2. Any gains withdrawn before 59 1/2. may be subject to income tax and a 10% penalty.

UTMA/UGMA – A UTMA provides favorable tax treatment on smaller amounts of annual investment income. For 2026, the first $1,350 of earnings are exempt from federal income taxes. The next $1,350 are taxed to the child. Anything greater than the $2,700 gets taxed to the parents. These limits are subject to change each year.

Trump Account – No withdrawals before age 18. In the year the child turns 18, the account generally becomes subject to Traditional IRA rules. Withdrawals of after-tax contributions are tax-free, withdrawals of growth, government seeding, or any other pre-tax contribution are taxed as ordinary income and a 10% penalty applies before age 59 1/2. The penalty can be waived for education spending and up to $10k of gains excluded from penalty for first-time home purchase. You cannot separate basis from growth. Distributions are pro-rata between basis and growth.

Clear as can be. Just like the tax code.

Each offers a nuanced tax benefit, with the largest benefit being tax free growth for education through a 529, but that benefit limits you to education spending. In other words, maximum flexibility usually means someone has to pay the piper. I often reframe this by asking, “Who do you want to pay the tax?” If you want to cover the taxes while you maintain control, look at UTMA or brokerage account. If you want to pass along the tax bill, a Trump Account could make sense.

Again, in most circumstances, if your child has earned income, open a custodial Roth IRA first. This is the only option that allows you to pay tax today (your child pays tax on their income which is probably a lower rate than yours) and you put money into their Roth IRA to grow tax-free and set up tax-free distributions for their retirement.

I AM LOST

You are not alone.

As you evaluate whether a Trump Account makes sense or how best to prepare future generations financially, we are happy to help you think through the options.

(1) https://www.schwab.com/learn/story/ins-and-outs-new-trump-kids-accounts

(2) https://www.whitehouse.gov/releases/2025/12/landmark-dell-gift-supercharges-trump-accounts-for-americas-kids/

(3) https://www.irs.gov/newsroom/529-plans-questions-and-answers

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