More than 6.5 million children have registered for a Trump Account, a new tax-deferred savings vehicle that allows contributions up to $5,000 annually per child. The Treasury provides $1,000 in seed money for children born between 2025 and 2028.
Trump Accounts invest in low-cost index funds and are inaccessible until age 18, at which point they convert to a traditional IRA. At that point, holders can convert to a Roth IRA, potentially making future growth tax-free.
Financial advisers agree: the free $1,000 is a no-brainer. But beyond that, opinions are mixed. The key advantage is that Trump Accounts bypass the earned-income requirement for Roth IRAs, creating a unique loophole. If the 18-year-old has little to no income, a Roth conversion could be tax-free.
However, critics note that funds intended for college may be better placed in a 529 plan, which offers tax-free withdrawals for education expenses and potential state tax deductions. They also caution that tax laws could change, undermining long-term benefits.
Ultimately, the decision hinges on how the money fits into a family’s broader savings strategy.