Why advisors do and don’t recommend Trump accounts

Although advisors might recommend that eligible clients sign up for the new Trump accounts to claim $1,000 government contributions, some see better savings options.

Processing Content

July 4 is when clients can start making contributions to the accounts, called Section 530A accounts, which are a type of individual retirement account. The U.S. Treasury will add $1,000 for each child who is a U.S. citizen and born between Jan. 1, 2025, and Dec. 31, 2028.

One drawback some advisors see is that parents are often saving for education and are able to guide those distributions in other plans. 

“I’m not seeing as much interest in [the Trump account] because children get access to it at 18, whereas the 529 plan, the parents or grandparents can keep control of their assets pretty much as long as they want, and they can change the beneficiaries,” Ryan McKeown, a CPA and CFP based in Mankato, Minnesota, who is senior vice president at Wealth Enhancement Group, said in an interview.

For clients looking to convert to Roth IRAs when the child reaches age 18, Trump accounts are great, he added.

“It’s more of a long-term savings strategy. Even using it for education, the distributions from a Trump account would be taxable for the most part — granted, it’s taxable to the child,” he added. “Hopefully, they’re in a lower tax bracket at the time. Then maybe not, because it’s unearned income, and if they’re still a student between age 18 and 24, then there’s potential for kiddie tax to get into the mix where they’d be taxed at the parents’ rate and not the child’s rate.”

Another advisor wasn’t deterred by children gaining access at age 18, however.

“When the person becomes 18, does it become their account? Yes. But guess what? Their own checking account becomes their own checking account,” Miklos Ringbauer, founder and principal of MiklosCPA, an accounting and tax firm based in Southern California, said in an interview. “If they want to make bad choices, they will make bad choices … they are over 18 — no matter what they will do at that point.”

In addition to the government’s $1,000 contribution, the ability of compounding tax-deferred earnings in the account makes it worthwhile, he added.

“I’ve only had a small amount of clients [want to do] Trump accounts, and they just wanted the free $1,000,” David R. Silversmith, a senior manager of private client services at New York City-based Eisner Advisory Group, said in an interview. “I’ve had people, even people making … seven figures, really wanting that free $1,000.”

These accounts also have a safe harbor from gift tax reporting requirements, according to guidance issued on June 29 by the IRS and U.S. Treasury Department. In other words, if a client contributes to a Trump account for a child, that contribution won’t reduce how much the client can give in gifts before reaching the gift tax limit. 

“Treasury made it even sweeter,” Ringbauer said.

Still, advisors can remind clients to be wary of the combined contribution limit of $5,000 in 2026. The annual limit will be adjusted for inflation after 2027.

Excess contributions will automatically go to a supplemental, taxable custodial account, according to a LinkedIn post by Ben Henry-Moreland of Kitces.com about his experience setting up these accounts.

“Calculate those contributions carefully or else you might get the ‘gift’ of another account to keep track of,” Henry-Moreland added.

READ MORE: Trump accounts: The details advisors need to know

Treasury chose The Bank of New York Mellon Corporation to handle implementation, along with online brokerage platform Robinhood.

Advisors can remind clients to check with their employers about whether they will match the U.S. government’s $1,000 contributions. Many employers, including JPMorganChase, Franklin Templeton and Charter Communications, have said they will.

Advantages of 529 plans vs. Trump accounts

In the long run, Trump accounts may not surpass other options for saving for kids, such as 529 plans. There are many pros and cons for advisors to help clients consider.

“Now you’ve got this alphabet soup of education savings accounts with 529s, [Coverdell education savings accounts] … [Uniform Transfers to Minors Act (UTMA)] accounts. What’s the best thing for you for saving for your kids?” McKeown said.

For tax benefits, Silversmith said the best choice is still a 529 plan, noting it is tax free if used for eligible educational expenses, and some states, such as New York, offer state income tax deductions for them.

READ MORE: Advisors weigh pros and cons of 529 plans

“I still see people thinking more about doing the 529 with the idea they’ll shift that into the Roth IRA, just because the parents and grandparents are more in control when that happens,” McKeown said.

For some clients, making savings available to their children when they turn 18 would be fine, but for most people, especially if they are maximizing annual contributions, that access for 18-year-olds “is causing some hesitancy to put funds in.”

McKeown speculated the “all-or-nothing access at the age of majority” might be among the aspects of the program adjusted in the future. As a point of comparison, he said most parents write directions in their wills to pace out how much of their assets should be distributed to their kids over time if they are too young when the parents die.

“I think I could gather quite a bit more interest in clients using [Trump accounts] if there was more latitude with the access,” he added.

If a client’s child was born before 2025 or will be born after 2028 and therefore won’t be eligible for the government’s $1,000 contribution, then as clients consider their choices, Ringbauer noted Trump accounts have smaller contribution limits than 529 plans.

In certain cases, he sees the benefits of Trump accounts winning in terms of methods for saving for children.

“If your pure goal is to save money, and you don’t know whether your child will go to school … then the Trump account has the ability to perform as a traditional IRA account,” he said.

Even if clients decide against contributing to Trump accounts, it still might be a good idea to create an account to claim the government’s contribution if eligible.

“I cannot see a real reason why you don’t want to get $1,000 free money for your child, for the three-year period right now,” Ringbauer said.