Your kid is getting a ‘Trump account.' Should you put your money in it?

Boston Globe

05-07-2025

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Republican lawmakers call the accounts 'Trump accounts,' though the Senate's plan to officially name them after the president did not make it to the final version of the legislation, which was signed Friday. They deliver on an idea that both Democrats and Republicans have floated for years: to invest money for all children at birth.
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Withdrawals from a 529 are not subject to state or federal taxes as long as the funds go toward qualified education expenses - a feature the new investment accounts don't share. And in the new accounts, parents' deposits don't qualify for a tax deduction, notes
Greg Leiserson, a senior fellow at the Tax Law Center at New York University. 'You have this very slight or minimal-to-nonexistent tax benefit,' he said. 'What is the point here?'
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Financial adviser Amy Spalding of Chapel Hill, North Carolina,
said she will continue to steer her clients to 529s. 'It's better from a tax standpoint,' Spalding said. 'And there are more investment options. And then there's a higher contribution limit.' (For 2025, a single person can deposit as much as $19,000 a year into a beneficiary's 529, while married couples can contribute as much $38,000.)
Jeremiah Barlow, a financial planner in Santa Barbara, California,
said the new accounts could benefit a family that has hit the maximum on their child's 529 and wants to save more, or who like the idea of setting up a fund for their child's first home or as an economic safety net. 'It would likely appeal to our families who want more flexibility for more general-purpose savings for their child's future,' Barlow said. 'You shouldn't rush to just use it because it's out there.'
Leiserson
cautioned that account holders should understand the tax implications, noting that withdrawals will be taxed at typical income rates, not at the capital gains rate of a taxable brokerage account. 'For most people, this is going to be worse than what they could do in a taxable account,' he said.
Though parents don't get a tax deduction when they contribute to a new account, employers can claim a tax break for contributions on behalf of their workers' children or their
teenage employees. Nonprofits also can contribute to they accounts.
The law requires the new investment accounts to track a U.S. stock index, which means account holders have fewer options than they would in a brokerage account or a 529 plan, which generally offer a range of investment options with varying levels of risk, including stocks, bonds and mutual funds.
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Leiserson noted that
all-stock portfolios come with their own risks, because they're tethered to market conditions. 'If you're saying, 'Okay, I'm going to start school in the fall' - if the market falls over the summer, the planning you were doing about how you were going to pay for college is totally messed up, because the money you thought would be there, isn't.'
The White House said the accounts 'will afford a generation of children the chance to experience the miracle of compounded growth and set them on a course for prosperity from the very beginning.'
While some experts appreciate the premise of
the accounts, they also see flaws in the design, such as the requirement that parents opt-in to the account on their tax return, which means people who don't know this might miss out. In addition, the law includes a penalty of at least $500 if a parent mistakenly claims an account, which could scare off some parents.
During the grinding
process of crafting the massive tax and spending legislation, the accounts changed both superficially - they were renamed from MAGA accounts to Trump accounts to a yet-to-be-determined name - and in substance. Legislators dropped plans to give account withdrawals favorable tax treatment similar to a brokerage account. Account withdrawals will be taxed at ordinary income tax rates, not capital gains rates.
Congress also discarded rules that would have prescribed how beneficiaries could spend the money - on college at 18, on starting a business at 25, on buying a house at 30. Instead, account holders cannot touch the funds until they turn 18. After that, the rules are the same as those of an individual retirement account - withdrawals are taxed like income, plus an additional 10 percent tax penalty on any withdrawals before age 59½ except for certain qualified uses.
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Those uses include paying for college, supporting themselves if they become disabled, or recovering from domestic abuse or a natural disaster. Beneficiaries also can withdraw as much as $10,000 to buy their first home, and up to $5,000 when they have a new baby themselves.
Even one of the Trump accounts' biggest proponents in Congress, Rep. Blake Moore (R-Utah), said in an interview
that for many parents, the new account design offers more benefits for retirement than for college expenses.
'I would argue that the tax implications of a 529 are far more favorable,' he said, but noted that most families don't have the disposable income to invest in a 529, and the new accounts' $1,000 from the government can benefit people at all income levels. If the account saw a 6 percent rate of return for 18 years, it would be worth $2,854; if the stock market does well, it could be worth even more.
'The most beneficial thing in my opinion about these is that … you're investing from birth into an IRA,' Moore said. 'Most people start investing in an IRA at 30 …. We're talking at birth or at 30. The benefits of investing early into that IRA are significant.'
Moore has four sons, and while none will qualify for the government's $1,000 seed money contribution for newborns, the law allows him to open a Trump account as a parent. He says he'll be putting money in it: 'I want my kids having a Trump account so they can take it out when they're 50 or 60 years old.'
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Jacob Bogage contributed to this report.