What Are Trump Accounts and How Do They Compare to Investment Alternatives?

With the costs of college and retirement increasing at breakneck speed, many parents are feeling the need to invest in their children’s futures as early as possible. Common options include 529 plans and custodial IRAs, with a new option emerging in 2026 dubbed “Trump accounts.”

Created under the “One Big Beautiful Bill Act” that was signed into law on July 4, 2025, Trump accounts can be used to fund a young person’s college or their retirement. While these investment vehicles come with free money for some children (based on age or geographic location), there are also some limitations to be aware of when comparing them with other options.

Referred to by Trump spokesperson Karoline Leavitt as a “401(k) for a newborn baby,” a Trump account can be used to fund one’s education, a first-time home purchase, the launch of a business or retirement. Here’s what you need to know about these accounts and how they stack up against other savings plans for children.

Trump accounts: What they are and how they’ll work

Contributions can be made into Trump accounts starting July 4, 2026. Here’s how the accounts will work:

• The federal government will contribute $1,000 to an investment account for every American baby born between Jan. 1, 2025, and Dec. 31, 2028.
• An additional $5,000 in after-tax contributions can be made annually to the accounts by parents, employers or other private entities.
• The money will be invested in index funds that track the overall U.S. stock market.
• Accounts will be controlled by a child’s legal guardians until age 18.
• Earnings will grow tax-deferred and withdrawals may be subject to restrictions and would be taxed at ordinary income rates.

Private donations from billionaires will provide additional contributions to the accounts of some children. These include a $6.25 billion donation from Michael and Susan Dell on Dec. 2, which will provide a $250 contribution to the accounts of around 25 million children who live in low-income zip codes. A $75 million contribution was announced Dec. 17 by billionaire hedge fund manager Ray Dalio to “boost funding for Trump accounts for kids across Connecticut,” according to Treasury Secretary Scott Bessent.

Assuming an inflation-adjusted 8% return, the $1,000 initial contribution would grow to roughly the following amounts, Kates says:

• $4,000 in 18 years
• $10,000 in 30 years
• Nearly $149,000 in 65 years

“Even modest additional contributions can dramatically change the outcome,” Kates says. “With a starting balance of $1,000, annual contributions of just $100 would accumulate to a total of nearly $350,000 by age 65, which is far in excess of the current median savings for retirees.”

Various business leaders have praised the accounts and said they’d make contributions to their employees’ kids’ accounts.

Bank of New York Mellon, for example, recently announced it will match the federal government’s $1,000 contribution for newborns of its eligible U.S. employees. “By matching the government’s contribution, we’re helping our employees give their children a head start toward a stronger financial future,” CEO Robin Vince said in a prepared statement.

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Trump accounts vs. 529 plans

Trump accounts have some similarities with 529 savings plans, but there are some notable differences. Note that since Trump accounts are brand new, various rules and regulations have yet to be ironed out.

Funding: Trump accounts will initially be funded by the government and private donations for those who qualify. They can also be funded by parents or other relatives, friends and employers. While 529 plans can also be funded by relatives, friends and employers, they don’t receive initial government funding.

Withdrawals:

• Withdrawals from 529 plans are tax-free as long as they’re used for qualified educational expenses at colleges, vocational schools or elementary or secondary schools. Excess funds can be moved to a Roth IRA when requirements are met (including a $35,000 rollover limit), and the 529 needs to have been open at least 15 years.
• Withdrawals from Trump accounts will have fewer restrictions on their uses, and they’ll generally function like traditional IRAs once the child turns 18, with penalties for early distributions that don’t qualify for exceptions, such as higher education expenses or first home purchases.

Contribution limits: Annual contributions for Trump accounts will be limited to $5,000, while 529 plans allow for much higher limits, from about $235,000 to more than $600,000, depending on the state that sponsors the plan (these are lifetime limits; there’s no annual limit for 529s). 

Learn more: Here’s what you should know about using a 529 plan to save for your kids’ education.

Trump accounts vs. custodial Roth IRAs

Custodial Roth IRAs also allow kids to set aside money and have it grow over time through investments. Here’s how they compare to the new Trump accounts.

• Earned income requirement: Trump accounts will be funded at birth and allow for additional contributions each year, while custodial Roth IRAs require a child to have earned income during the year in order to contribute.
• Contribution limits: Custodial Roth IRA contributions are limited to $7,000 in 2025, or the total amount of earned income a child has during the year, whichever is less. Trump accounts will allow for annual contributions of $5,000.
• Taxes on withdrawals: Withdrawals from Roth IRAs during retirement are tax free, while Trump account earnings will be taxable as ordinary income for qualified  withdrawals. 

Here’s more on custodial Roth IRAs.

Bottom line

The new Trump accounts will create investment accounts for every American baby born in the next few years, funded with $1,000 from the federal government — with an additional $250 for eligible children aged 10 and under. The accounts will be invested in index funds that track the U.S. stock market and can receive additional contributions each year of $5,000 from private entities.

While the accounts provide free money to those who qualify, parents should be aware of the annual contribution limits and consider additional accounts in order to put forth more savings.

“The real benefit of this program is time. Investing at birth instead of later in life paves the way for powerful compounding, especially for those who are patient enough to wait for it,” Kates says. “For someone who keeps this money growing until age 65, investing $1,000 at birth instead of 18 years old is the difference between $149,000 and $37,000, assuming an 8% rate of return.”