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If you have kids or grandkids, there’s a deadline on the calendar you may not know about. Dec. 31 is the last day to put 2026 money into a Trump Account. (1)
The annual limit is $5,000, and that includes deposits from family, employers and anyone else. It doesn’t include the one-time $1,000 the Treasury is depositing for eligible children born from 2025 through 2028. (1)
The program is popular. About 7 million children had been signed up as of late July, according to Treasury Secretary Scott Bessent. (2) And the rules are still being finalized: The Treasury and IRS released proposed regulations in August, with a public hearing set for October. (1)
The accounts opened July 4, and the money can only go into low-cost index funds, with fees capped at 0.10% a year. (3) That part, I love.
I’ve been a CPA since 1981, and my advice starts simple: If your child qualifies for the free $1,000, take it. But whether you should add your own money is a completely different question — and the answer depends on what you’re saving for.
Here are five things to know before you write a check, including a tax trap that could bite right when your kid heads to college.
1. Take the free $1,000 — seriously
The seed money is available for U.S. citizens born between Jan. 1, 2025, and Dec. 31, 2028, who have a Social Security number. You sign up by filing IRS Form 4547 or using the online tool at trumpaccounts.gov. (3)
There’s no cost to you, and the money is invested in a broad, cheap stock index fund. Eighteen years of growth on free money is a gift, whatever your politics. Don’t leave it on the table.
2. Your own contributions don’t come with a tax break
Here’s where it gets less exciting. When you or a grandparent contribute, you do it with after-tax dollars. There’s no deduction. (3)
The money grows tax-deferred, but earnings are taxed when they come out. (3) The account generally can’t be tapped before 18, and after that it follows traditional IRA rules. Withdrawals before 59½ are typically taxable and may face a 10% penalty unless an exception applies. (3)
Those exceptions include certain education costs and up to $10,000 for a first home. (3) Useful — but it’s a lot more restrictive than it sounds when someone says “savings account for kids.”
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3. Watch out for the kiddie tax
This is the part most parents haven’t heard about. Withdrawals of earnings and pre-tax money from a Trump Account count as unearned income for your child. (3)
Under the kiddie tax, a college student between 19 and 23 who gets most of their support from you can have part of that income taxed at your rate, not theirs. (3) So a withdrawal meant to help with college could come with a bigger tax bill than you expected.
That trap doesn’t apply to qualified withdrawals from a 529 plan or a Roth IRA. (3) Which brings me to the real question.
4. When a 529 or a Roth beats it
If the goal is college, a 529 plan is usually the better tool. Earnings grow tax-deferred, withdrawals for qualified education costs are tax-free, and your state may give you a tax break for contributing. (3)
If your teenager has a job, a custodial Roth IRA is hard to beat. It requires earned income, but qualified withdrawals are tax-free, and contributions can come out anytime without tax or penalty. (3)
My rule of thumb: Take the free $1,000. Then fund the 529 for college and the Roth if your kid has a paycheck. After that, extra long-term money can go into the Trump Account.
If you’re a grandparent juggling gifts, your own retirement and taxes all at once, this is where a second opinion pays off. Services like SmartAsset match you free with up to three fiduciary advisors — pros legally required to put your interests first. If you’ve got $100,000 or more invested, get matched with a fiduciary advisor free.
5. Don’t overfund — and protect the bigger plan
The $5,000 cap counts every source combined, including an employer’s contribution. A tax pro told CNBC to be careful not to overfund, because excess contributions face a 6% penalty every year until they’re removed. (4) Check your workplace benefits before you add more.
And remember, the most valuable asset in your child’s financial future isn’t an account. It’s your income. If anyone depends on your paycheck, term life insurance is the cheapest way to protect them — and premiums rise with every birthday.
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The bottom line
Trump Accounts aren’t a scam, and they aren’t a miracle. The free $1,000 is a genuinely good deal, and the low-cost index funds are exactly what I’d pick for a child’s long-term money.
But when it comes to your own dollars, the name on the account matters a lot less than the tax rules behind it. For most families, a 529 and a Roth deserve to be first in line.
And if you’re a grandparent thinking about a year-end gift, remember why you’re doing it. The three purposes of money: to meet your needs, to meet some of your wants, and most important, to make someone smile. A gift that grows for 18 years does all three.
Sources: 1. CNBC; 2. CNBC; 3. Fidelity; 4. Yahoo Finance;
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