Trump Accounts for Kids: Grab the Free $1,000, Then Move On

If you've got a kid born between 2025 and 2028, the government will give you $1,000 for free to put in a "Trump Account" for their retirement. Should you take it? Yes. Should you dump more money into it? Probably not.

Here's what you need to know about Trump Accounts and why your kid's college fund or custodial account is likely a better bet for everything beyond that free grand.

Who Gets the Free Money?

Trump Accounts (TAs) were created under the One Big Beautiful Bill Act. Think of them like traditional IRAs for kids—except they have some weird rules that make them less attractive than they sound.

Here's who qualifies for the $1,000 pilot contribution:

• Kids born 2025-2028
• U.S. citizens only
• You have to elect to open it (it's not automatic)

The IRS will deposit $1,000 into the account once you make the election. That money grows tax-deferred until your kid hits 59½. Not bad for filling out a form.

To claim it: When we file your 2025 taxes, we'll help you complete Form 4547. Or you can do it yourself at trumpaccounts.gov starting mid-2026.

The Contribution Rules (Birth Through Age 17)

During your kid's first 18 years, here's what can go into a Trump Account:

• You and family: Up to $5,000/year in after-tax contributions
• Employers: Can contribute up to $2,500/year (pre-tax)
• Government/charities: Unlimited contributions (don't count toward the $5,000 limit)

If you're active duty or federal, your employer could contribute to your minor kid's TA as a benefit. That's worth looking into. But for most military families, you'll be funding this yourself if you go beyond the free $1,000.

After your kid turns 18, the account basically becomes a traditional IRA with all the same rules—and problems.

Why Trump Accounts Aren't as Good as They Sound

Here's the issue: after decades of tax-deferred growth, nearly everything in the account becomes taxable at ordinary income rates (up to 37%) when withdrawn.

Let's say you max out contributions ($5,000/year) from birth to age 17. According to the Kitces analysis, by age 60 your kid would have about $6.2 million in the account. Sounds incredible, right?

Here's the catch: only $116,000 of that is tax-free basis. The other $6.1 million gets taxed as ordinary income. That's the same tax headache facing people with million-dollar traditional IRAs today—Required Minimum Distributions, the 10-year rule for beneficiaries, and getting crushed by high tax rates in retirement.

You'd essentially be creating a massive tax problem for your kid 60 years from now. This is exactly why I recommend diversifying across different tax baskets rather than putting everything in one type of account.

The Better Option: UTMA/UGMA Custodial Accounts

For most military families, a regular taxable custodial account beats a Trump Account for money beyond that free $1,000. Here's why:

The "Kiddie Tax" is your friend. Up to $2,700 of investment income per year is tax-free for your kid. If you harvest capital gains annually up to this threshold, you build basis in the account that never gets taxed.

Complete flexibility. Your kid can use the money for college, a house down payment, starting a business, or whatever they need before retirement. No penalties. No age restrictions.

Lower tax rates. When they eventually sell, they pay capital gains rates (0-20%) instead of ordinary income rates (up to 37%).

The Kitces analysis shows that after 40+ years, a custodial account can actually be worth MORE on an after-tax basis than a Trump Account—even though it doesn't get tax-deferred treatment.

What About 529 Plans?

If you're saving for college, 529 plans are still your best bet:

• Tax-free growth for education expenses
• Can now roll up to $35,000 to a Roth IRA tax-free after 15 years
• Covers K-12, trade schools, apprenticeships (not just college)

My recommendation: Fund a 529 first. Once you hit $35,000 (to maximize the future Roth rollover option), then consider a custodial account for additional savings.

My Take: What to Actually Do

If your kid was born 2025-2028:

Absolutely claim the free $1,000. Let us handle it when we file your taxes, or do it yourself at trumpaccounts.gov. It's free money—take it.

For additional savings:

Skip the Trump Account. Use a 529 for college savings and a UTMA/UGMA custodial account for everything else. You'll have more flexibility, potentially better after-tax results, and you won't create a tax nightmare for your kid in 2085.

If your employer offers TA contributions:

This changes the math. Free employer money is always worth taking. Open the account and grab the match, then plan to convert to Roth later when your kid is independent.

Action Steps

1. Check if your kid qualifies for the $1,000 pilot contribution (born 2025-2028)
2. Make the election when you file your 2025 taxes
3. Focus your actual savings efforts on 529s and custodial accounts instead
4. If you're active duty/federal, ask if your employer will contribute to TAs

Need Help?

Figuring out the right savings strategy for your kids gets complicated fast. We help military families navigate these decisions every day at Stellar Wealth Management.

Schedule a consultation or email me at matthew@stellarwm.com.