Are the New Trump Child Savings Accounts Worth It?

The 2025 "Big Beautiful Bill" created a new type of investment account for children, but the new "Trump Accounts" might not live up to the hype

Disclosure: The author is not a financial advisor and this piece is not meant to give financial advice

I wanted to write something a little different from my usual news and politics takes. Some of you may know that I used to be a financial advisor long ago, and recently I took an interest in reading up on a new type of savings account created with the goal of helping parents and grandparents help their kids start an investment account.

But reading up on these accounts, it seems like they're not all they're cracked up to be and could leave your kid with a serious tax bill early in their adulthood.

Last year's Big Beautiful Bill created 530A accounts for those under age 18, which have been dubbed "Trump accounts" by many. These accounts, which became available in July this year, allow folks to make post-tax contributions up to $5000/year to an investment account in a child's name, similar to how 529 education savings accounts work. Except these accounts are not tied to paying for education once a child reaches college age.

The money must be put into low cost index funds that spread the money across wide ranges of the market. At first blush, these accounts seem to have some benefits, but in reality, there are some serious tax risks that come with having one of these accounts.

These 530A accounts allow for certain types of withdrawals without a penalty, like paying for education or buying a first home, but generally these accounts must be withdrawn or converted to an IRA once a child reaches age 31. Upon conversion or withdrawal, all investment gains are taxable according to the child's income tax bracket at that time, but this is where these accounts carry a lot of tax risk.

If not handled correctly, gains on these accounts could be taxed at the parents' tax rate (the so-called "Kiddie Tax"), which defeats the whole purpose of having the account in the first place. There is basically one path to success on the tax side of these accounts and that is to roll it over into a Roth IRA after the child is no longer subject to the Kiddie Tax and before they have a higher paying job that would put them in a higher income tax bracket.

This would allow them to enjoy tax free distributions in retirement or for a qualifying early withdrawal. But converting to a Roth also significantly restricts the ways your child could use the money in the future. If they need the money before retirement, or the rollover is mishandled, the potential tax exposure compared to just a regular investment account would not be worth it.

The other scenario where it might make sense to go with a Trump account is if you're a very active trader, making constant short term investments. Short term capital gains are taxed at a significantly higher rate than long term gains or regular income, but who in their right mind is going to be micromanaging between index funds in their child's account?

These accounts have the feel of a good idea, but are executed poorly. The parents are on the hook for taxes on their contributions (compared to a traditional IRA where you can take that money as a tax benefit) and the child is most likely going to end up paying a higher tax rate on the gains they make in the account.

In a regular investment account, you invest money and then you are taxed on the long term capital gains. When an investment is held for 18 years, that tax rate is usually extremely low. But Trump account gains are taxed at the significantly higher income tax rate of the individual.

According to the Tax Law Center, these Trump accounts only serve the purposes of wealthy taxpayers with the free time and resources to navigate the system (read their very thorough piece with more details here):

The proliferation of tax-preferred savings accounts for various purposes has created a menu of tax subsidies for people who already have spare time and money who can allocate their savings to these various accounts to maximize their tax benefits. They serve, generally, as a transfer of public resources to already well-off filers.

My worry with these accounts is that parents who should be saving for themselves and their own needs are instead going to make a "noble choice" and sacrifice themselves by investing in their children's futures through these new accounts.

Even Fox Business is warning folks about this while also ballwashing the new Trump accounts. "I love that we're bringing this conversation to the forefront with these Trump Accounts… But the sad truth is most Americans aren't investing for themselves, let alone have the ability to invest for their kids," Fox Business's George Kamel said recently. "We tell people, hey, become debt-free, don't owe other people money, have an emergency fund so that you have the margin to build wealth for yourself. And once you're investing 15% of your own income into your own retirement, then and only then should you be thinking about investing for your kids."

You know the old adage that in an airplane emergency, you first fasten your own oxygen mask before helping those around you who can't do it themselves? That's the attitude you should be taking into your investment decisions.

To me, there's not much point in using a Trump account, in which you are entrusting a future young adult to perfectly handle a complicated financial transaction, likely with paid help from a professional. A regular taxable investment account would give them the freedom to withdraw money at any time, for any reason, and likely with a lower tax rate on the gains.

Like with most things Trump, you have to look closely at the financial specifics of what you're getting into. Skip the Trump account, it's probably not worth it for you and your kid.

Thank you for reading! I hope you appreciated something a little different today. Sometimes it's nice to flex an old muscle I haven't used in years. Let me know what you thought of this in the comments!