What’s so great about Trump Accounts?

John Gjertsen, CFA, CFP®, EA

Of all the new tax rules established by the Big Beautiful Bill, the new Trump Accounts were one of the least interesting to me, initially, for three reasons:

1. All the headlines seemed to be about the $1,000 that the government was chipping in for babies born in 2025-2028. None of my four children were born in that window.
2. The requirement that the allocation be 100% US Large Cap stock seemed arbitrarily inflexible. What use were they, when there are already 529 plans and IRA accounts that have been part of the financial landscape for much longer, and had more investment choices?
3. Finally, and least importantly: because the name itself seemed like a distraction or gimmick. Is this some kind of political statement like a meme coin with limited utility?

But this week I downloaded the Trump Account app on my phone, opened four Trump accounts for my children in the space of about 20 minutes, and thought I would share about how I got from “what’s the point, anyway” to “this is actually a great idea.”

One quick note on naming: you will also see these called “530(a) accounts,” after the section of the US Tax Code that defines them.

The point of Trump/530(a) accounts, when properly understood, is to jumpstart a child’s retirement savings. They are not locked into  US Large Caps forever (they have to be at least 90% US stock) – at age 18 they convert to regular IRA accounts. While 529 plans are useful for an education expense, which would allow for 15-20 years of compounding to occur, 530(a)s and the IRAs they eventually morph into are much longer tax-deferral vehicles that are designed to distribute after age 59½, and therefore have many more decades of compounding growth.

The new thing that Trump accounts do that IRAs do not is allow for contributions (up to $5,000) without earned income. That allows for nearly two decades of additional compounding growth for parents who want to get an early start on helping their children grow long-term wealth. Do they belong in your financial plan? If you have young children and enough confidence in your own financial future that you can pour a little extra into theirs, then they probably do.

Here is another reason I am liking these accounts: The Michael and Susan Dell Foundation is making $250 deposits into the first 25 million 530(a) accounts opened for children who are:

1. Not born in the $1,000 bonus deposit window (2025-28)
2. age 10 and under (born 2016-2024)
3. In zip codes where the average income is $150,000 or less (that’s most of us – you can check https://investamerica.org/dell/)

You’ll read elsewhere about a tax Form 4547. It isn’t necessary. Download the Trump Account app and the first thing it will ask you is if you filled out this tax form. Answer “no” and it will prompt you for all the same information, essentially birth dates and Social Security numbers. Also, the accounts are all initially opened by the Bank of New York Mellon with Robinhood acting as the initial custodian and brokerage. Pending some details that are, at the time of this writing, still being worked out, it’s expected they will be able to transfer to Schwab, Fidelity, or any similar custodian.

There’s a technical note about the 530(a) to IRA transition which I haven’t seen enough written about, but is actually pretty important. The contributions made by the government or charitable entities like the Dells, as well as the growth on all contributions, is considered pre-tax. But the contributions that parents or grandparents or any other individuals make is considered post-tax, making up basis in the IRA.

As an example, starting with an 8 year old where the parent contributes $5,000 each year for 10 years, there is a basis of $50,000. Perhaps over those 10 years the contributions (as well as the Dell contribution) the account grows to $80,000. Once the child gets their first job, they can convert $50,000 of this (now) IRA into a Roth IRA and it’s tax-free provided they rollover the rest of the IRA into their employer’s qualified plan, such as a 401(k). (That last step is important; otherwise, the conversion is prorated between pre-tax and after-tax money, thus isn’t free.) Now not only the $50,000 basis, but all of its future growth, is tax-free for decades. Seeding a Roth IRA as early as possible is huge boost to a child’s eventual financial independence, something that is now possible with these new 530(a) accounts. And that’s the great idea.

The 530(a) is a new tool in the toolbox. particularly for parents or grandparents who take a long view of passing wealth to another generation. Using this tool well means understanding how it fits in with all the other tools, and BlueSky Wealth Advisors is happy to help guide conversations about all of them.