Normally I shy away from discussing accounts that seem to come from a political gambit or whim. However, talking to my Friend in Finance, Cameron Morgan, made me think I should learn and share a bit about the new 530a (aka Trump) accounts.
These accounts could be a solution to the question I often get from parents: Can I open a Roth IRA for my child? The answer is no, unless the child has its own earned income (baby models, for example).
So, What Exactly Is a Trump Account (or 530a, if you prefer different language)?
Trump Accounts are a new type of investment account for children, created by a 2025 federal tax law. Think of them as a starter retirement account for kids. These accounts are meant to give more children a chance to become investors at a young age,
A parent, guardian, or other authorized person can open an account for an eligible child who is under age 18 and has a valid Social Security number.
The federal government is helping to jump-start that idea with a special pilot program.
Children born from 2025 through 2028 who meet the rules can receive a one-time $1,000 deposit from the federal government.
This isn’t a match – the $1,000 is deposited regardless of whether other contributions are made from the child’s family.
Parents, grandparents, friends, and employers can also contribute. Generally, those contributions are limited to a combined $5,000 per year, although some government and charitable contributions don’t count toward that limit.
There is no tax deduction for the up-to $5,000 annual deposits. Also, the deposits can be withdrawn without paying taxes – but age restrictions apply.
For now, the initial accounts are being handled through Robinhood, which was selected as the brokerage and initial trustee for the program. I’m sure it was a very unbiased selection process.
During the years before the child turns 18, the money is invested in low-cost funds that follow a broad group of U.S. companies. Basically, an S&P 500 Index fund. No day-trading in these accounts.
The money also generally can’t be withdrawn before age 18. Sorry, teenagers—a new gaming system is not a financial emergency.
Once the child reaches 18, the account generally follows the rules for a Traditional IRA. Tax-deferred growth, ability to withdraw penalty-free at age 59.5, and the option to convert the account to a Roth IRA.
A Roth Conversion would mean the child-now-semi-adult would be on the hook for income taxes on the growth of the account. Hopefully Robinhood is keeping good records on the post-tax vs. pre-tax money in these accounts.
Who gets the $1,000? Trump Accounts can generally be established for eligible children under age 18, but the special $1,000 government contribution is only for qualifying U.S. citizen children born from 2025 through 2028.
Here is an example of how a 530a account might play out:
Suppose a newborn receives the government’s $1,000 and kindly parents/grandparents/rich Aunties contribute $5,000 each year in 2025, 2026, and 2027.
Growing at a 7% average annual return, that account would be worth about $19,000 after the first 3 years.
Now, say that annual contributions stop. At a 7% average annual return (not guaranteed!), the account could grow to $52,000 by age 18.
Let’s say the child converts that to a Roth IRA at age 18 and continues to get 7% average annual growth.
First, there is a tax bill. Let’s assume a 15% real tax rate on the $37,000 growth. Someone needs to pay $5,550 in taxes.
But by age 60, the Roth IRA could have grown to a tax-free account worth $891,000. Not terrible for a $15,000 initial contribution from the family!
530a Accounts won’t replace other ways of saving for children. Depending on a family’s goals, college savings accounts, Roth retirement accounts later in life, and regular investment accounts can all have advantages.
But, hey, if the government is going to give free cash to your baby, it’s something to check out.
