Trump Accounts: Look Before You Leap

When a new child savings account comes with a $1,000 government contribution, it is going to get attention. That is exactly why many parents have been asking about “Trump Accounts” and whether they should open one for their child, especially with how easy it was for 2025 on the tax return.

The answer can be chalked up to, it depends.

For some families, especially those with a child who qualifies for the federal pilot program, opening a Trump Account may make sense simply to capture the free $1,000 seed contribution. But for many other families, especially those who do not qualify for that pilot benefit, the account may be far less attractive than it sounds. And for Illinois families saving for education, a 529 plan will often remain the stronger primary planning tool.

What is a Trump Account?

Providing a pilot contribution may be an easy way to jumpstart investing, but taxpayers should understand the future benefits and if they make sense based on family goals.

A Trump Account is a new type of child-owned investment account under Internal Revenue Code Section 530A. The account is generally available for a child under age 18 who has a valid Social Security number. The feature getting the most attention is the one-time $1,000 Treasury pilot contribution for eligible children. Form 4547 is used to elect the account and request the $1,000 pilot contribution for qualifying children.

That pilot contribution is limited. The $1,000 seed applies to children who are U.S. citizens, have a valid Social Security number, and were born between January 1, 2025 and December 31, 2028. For those families, the case for opening the account is pretty straightforward: free money is free money.

But once you move past the seed contribution, the analysis changes.

The biggest issue: no seed, no obvious advantage

For families whose children do not qualify for the $1,000 pilot contribution, the Trump Account loses much of its appeal. Family contributions are not deductible, the investment options are limited, the account is largely locked up before age 18, and the child generally controls the account at adulthood. Also, earnings are generally taxed as ordinary income when withdrawn, even though certain withdrawals may avoid the 10% penalty, like first-time home buyer, like any other individual retirement account.

That last point is important. Many families hear “tax-advantaged account” and assume it works like a 529 plan. It does not.

With a 529 plan, qualified education withdrawals are generally tax-free at the federal level. That means if you save for college or other qualified education costs, the investment growth can come out tax-free when used properly. The IRS describes 529 plans as qualified tuition programs that allow tax-free treatment for qualified education expenses.

By comparison, Trump Account earnings may be tax-deferred while the money grows, but that does not automatically make the earnings tax-free when withdrawn. That is a major difference for parents who are mainly trying to save for education.

Why Illinois families should be especially careful

Illinois families have another reason to pause before treating a Trump Account as the default savings vehicle.

Illinois offers state tax benefits for contributions to qualifying Illinois 529 plans. Illinois taxpayers may be able to deduct up to $10,000 for single filers or $20,000 for married couples filing jointly for contributions to qualifying Illinois 529 plans.

That deduction can make a real difference, saving up to $990 in Illinois income tax for taxpayers who max out their contributions.

For example, if an Illinois married couple contributes to an eligible Illinois 529 plan, they may receive a state income tax deduction, subject to the applicable limits and rules. A Trump Account does not offer the same tax benefits, and any contributions are not deductible. So if your child does not qualify for the $1,000 federal seed, and your main goal is college savings or you expect the value to be less than the $35K Roth rollover limit for the beneficiary, it may be hard to justify a Trump Account over a 529 plan.

In plain English: Illinois rewards you for using a qualifying 529 plan, a Trump Account does not have any tax rewards, even at the federal level.

Trump Accounts are investment accounts, not savings accounts

Another misconception families need to avoid is thinking of a Trump Account as a bank savings account. It is not.

Trump Account investment options are limited to low-cost mutual funds or ETFs that track broad U.S. equity indexes. That can be a good long-term investment structure, but it also means the account is exposed to market risk. The value can go up, and it can go down.

That is not necessarily bad. Long-term investing for a child can be a powerful tool. But parents should understand what they are opening. This is not a guaranteed savings bond. It is not a high-yield savings account. It is an investment account with rules, limits, tax consequences, and future control issues.

Control matters too

One of the underappreciated differences between a Trump Account and a 529 plan is control.

With a 529 plan, the account owner, usually the parent or grandparent, generally keeps control of the account. If one child does not need all the funds, the beneficiary can often be changed to another qualifying family member. There are also newer rules that may allow certain unused 529 funds to be rolled to a Roth IRA for the beneficiary, up to $35,000 if the account has been open for 15 years.

With a Trump Account, the account is child-owned, and the beneficiary generally has control at adulthood. Some families may be comfortable with that. Others may not be.

This is not just a tax question. It is a planning question.

When might a Trump Account make sense?

I do not think Trump Accounts are useless, but outside of the $1,000 pilot contribution, there is no difference between a Trump Account and a traditional IRA which can be opened in 5 minutes on the website of a brokerage like Fidelity or with your local financial advisor. I just think they need to be put in the right place.

A Trump Account may make sense if your child qualifies for the $1,000 pilot contribution. In that case, I would generally view the account as a “claim the seed money” opportunity. It may also make sense if an employer, charity, or other third party is contributing money that your family would not otherwise receive. The only other area in which it may make sense to open and contribute to a Trump Account is if you already are maxing out every other account you have, allowing you to put up to $5,000 a year towards a future goal.

But if there is no government seed, no employer contribution, and no charitable contribution, and you aren’t maxing out every other account, the account becomes much less compelling for most families.

At that point, parents should ask: what does this account do better than a 529 plan, Roth IRA, custodial account, brokerage account, or simply funding other family goals?

For education-focused families, the 529 plan often wins.

My practical recommendation

If your child qualifies for the $1,000 federal seed, open the Trump Account to capture that $1,000 seed benefit. But do not assume every future dollar should go there. If your child does not qualify for the seed, be cautious. Without the upfront government money, the Trump Account may not be the best first choice, especially if your primary goal is education savings.

If you live in Illinois, look closely at the Illinois 529 options before funding a Trump Account. The combination of potential Illinois tax deductions, federal tax-free qualified education withdrawals, higher education-focused flexibility, and parent control can make a 529 plan a much better fit for many families.

The bottom line is simple: a Trump Account may be worth opening for the free money, but it should not replace thoughtful planning. For many parents, especially in Illinois, the better strategy may be to use the Trump Account only if there is a real outside contribution and continue treating the 529 plan as the main education savings vehicle.

Before opening or funding either account, you should talk with your tax advisor. The right answer depends on your child’s eligibility, your state tax situation, your education goals, your cash flow, and how much control you want over the money later.