By Joel Chouinard, CFP®
February 26, 2026
Deciding how to save for your children’s future is a big decision. With so many options available, choosing the wrong one could have long-term consequences for your taxes, your child’s financial aid eligibility, and your control over the money.
A new option, the "Trump account," has added another layer to this decision. How does it stack up against more familiar savings vehicles like 529 plans, UTMAs, and standard brokerage accounts? Let's break down what each account offers so you can determine the best fit for your family’s goals.
What is a Trump Account?
Introduced as part of the "One Big Beautiful Bill Act," a Trump account is a new savings vehicle for children that functions much like a traditional IRA.
Family members or even businesses can make after-tax contributions to this account on behalf of a child. That money then grows tax-deferred until retirement. When the child eventually takes distributions in retirement, those withdrawals are taxed.
A critical feature is that at age 18, the child gains control of the account, and it automatically converts into a traditional IRA.
Key Rules and Restrictions
Because these accounts offer tax advantages, they come with specific rules:
- Contribution limits: The maximum aggregate contribution (between parents, grandparents, businesses, etc.) is $5,000/year. Note that contributions from charities or governments don’t count toward the limit.
- No Withdrawals Before 18: Money cannot be withdrawn for any reason before the child turns 18.
- Post-18 Rules: Once the account becomes a traditional IRA at age 18, it follows standard IRA rules. Distributions taken before age 59 ½ that don't qualify for an exemption will be taxed and hit with a 10% penalty.
- Limited Investments: The funds in a Trump account can only be invested in ETFs or mutual funds that track U.S. indices, like the S&P 500 or the Russell 2000.
- Basis Tracking: You must keep track of your contributions (your "basis") because that money has already been taxed. This is important for ensuring those original contributions aren't taxed again upon withdrawal in retirement.
- Government Pilot Contribution: To encourage adoption, the government will contribute $1,000 to each Trump account opened for a baby born between January 1st 2025 and December 31st 2028. This is essentially a free $1,000 to kickstart your child's retirement savings.
How Do Other Savings Options Compare?
While Trump accounts offer a new way to save for retirement for your child, other accounts are designed for different goals. Here’s a look at the most common alternatives.
529 College Savings Plans
As the name suggests, 529 plans are designed specifically for education expenses.
- How They Work: You contribute after-tax money, which grows tax-deferred. If you use the funds for qualified education expenses (like college tuition or K-12 private school), the withdrawals are completely tax-free. This makes 529s a highly tax-efficient way to save for school. Note, in certain states, you may be able to deduct a portion of your contribution on your state tax return.
- Control: The account owner (typically the parent) retains control. There is no automatic transfer of ownership to the child at a certain age. If one child doesn’t go to college, you can change the beneficiary to a sibling, cousin, or another relative.
- Flexibility: While primarily for education, recent rule changes allow up to $35,000 to be rolled over into a Roth IRA for the beneficiary if the funds aren't used for college.
- Contribution Limits: There are no annual contribution limits, though contributions are subject to gift tax rules for very large amounts.
UTMA/UGMA Accounts
The Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) are custodial accounts that function like small trusts for the child.
- How They Work: Contributions are irrevocable gifts to the child. At the age of majority (18 or 21, depending on your state), the child gains full control of the account and can use the money for anything they want—a car, a trip, or anything else.
- Taxation: These accounts follow Kiddie Tax rules, taxing unearned income (dividends, interest, and capital gains) above a threshold at the parent’s rate to prevent shifting income to kids. At age 24 (or earlier if the child is not enrolled full-time in college), the account is taxed like a regular brokerage account.
- Control: This is the biggest factor. Once your child reaches the age of majority, the money is legally theirs, and you have no say in how it’s spent.
- Contribution Limits: Just like 529s, there are no annual contribution limits, though contributions are subject to gift tax rules above certain thresholds.
Parent-Owned Brokerage Account
A simple and flexible option is to open a standard brokerage account in your own name and earmark it for your child.
- How It Works: You open a taxable investment account and use it to save for a specific goal, whether it’s a car, a wedding, or a down payment on a house. Because it’s your account, you decide when and how to give the money to your child.
- Control: You have complete control. If your priorities change or you decide your child isn’t ready for a large sum of money, you are under no obligation to hand it over. The money remains yours.
- Taxation: This account has no tax advantages. You will pay taxes on dividends and interest annually (at the parent’s rate), and you will owe capital gains taxes when you sell investments at a profit.
How to Choose the Right Account for You
With these options in mind, choosing the right one comes down to answering two key questions.
- What is the money for?
Your goal for the funds is the most important factor.
- For Retirement: If your main goal is to give your child a head start on retirement savings, a Trump account is an excellent tool. Thanks to decades of tax-deferred compound growth, even a small initial investment can grow into a massive sum. A one-time $5,000 contribution could potentially grow to $1.5 million by the time your child turns 60.*
- For College: If you are certain the money will be used for education, a 529 plan is hard to beat due to its tax-free growth and withdrawals for qualified expenses.
- For Other Goals: If you’re saving for a non-education goal like a car or a house down payment, a UTMA or a parent-owned brokerage account are better options.
- If You're Unsure: When you don’t have a specific goal, flexibility is key. A brokerage account in your name offers the most flexibility, as it has no restrictions on its use.
- How important is control to you?
Your comfort level with relinquishing control is the second major consideration.
- Low Control: Both Trump accounts and UTMAs automatically transfer to your child at age 18 (or 21 for some UTMAs). You need to be comfortable with your child having access to a potentially large amount of money at a young age. While Trump accounts have penalties for early withdrawal, an 18-year-old might not fully grasp the consequences.
- High Control: If you want to maintain control, a 529 plan or a parent-owned brokerage account are your best options. You decide when and how the money is used.
The Bottom Line
There is no single "best" account for every family. The ideal choice depends entirely on your specific goals and your feelings about control.
- Trump Accounts: Highly tax-efficient for long-term retirement savings, but new and with restrictive rules. The free $1,000 for children born from 2025-2028 makes them very appealing.
- 529 Plans: Unbeatable for tax-efficient college savings, but use is limited to education expenses.
- UTMA/UGMA Accounts: Offer flexibility in use but come with a complete loss of control at age 18 or 21.
- Parent-Owned Brokerage Accounts: Provide maximum flexibility and control but offer no tax advantages.
Each account comes with its own set of pros and cons. By defining your goals first, you can navigate these options and choose the path that best supports your child’s future.
*Assuming a 10% annual rate of return over 60 years.
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