The Trump Account is brand new. There's no prior version to compare it to and no old rules to update, because the One Big Beautiful Bill Act created this account. As a financial advisor in Lexington, Kentucky, this week I cover exactly what it is, how it works, and how it may be best used in practice.

This is week seven of our OBBBA series on The Groundwork.

WHAT YOU'LL LEARN

What Is a Trump Account?

•      A tax-deferred savings account opened on behalf of a child, unlike anything that's existed before

•      A parent or guardian opens the account; it can be opened anytime before the child turns 18

•      Available to open beginning July 4, 2025

•      Children born between January 1, 2025 and December 31, 2028 may qualify for a one-time $1,000 federal government contribution deposited directly as a starting balance

•      No income requirements for the family: available regardless of what you earn

•      Contributions are not tax deductible (money goes in after tax), but growth inside the account is tax deferred

Contribution and Investment Rules

•      Annual contribution limit: $5,000 from all sources combined

•      The $1,000 government contribution does not count against the $5,000 limit

•      Employers can contribute up to $2,500 of the $5,000 limit and may deduct it as a business expense

•      Investments limited to low-cost index mutual funds and ETFs tracking broad US equity markets. No individual stocks.

•      Expense ratios capped at 0.10%, keeping costs very low

Key Rules and What Happens at Age 18

•      Irrevocable gifts to the child: once money goes in, it belongs to them

•      Child cannot access the account until the calendar year they turn 18

•      At age 18, converts to a traditional IRA in the child's name, with all traditional IRA rules, including penalty-free withdrawals for first-time home purchases and qualifying college expenses

•      Withdrawals taxed as ordinary income on the growth portion (basis returned pro rata). Different from a Roth, where growth comes out tax-free.

•      The account can continue to grow beyond age 18 with RMD rules eventually applying

How to Think About the Account

•      Best uses: a head start on retirement savings for a child, and/or a tool for teaching a child how to invest

•      Key advantage: unlike a child's IRA, no earned income requirement. A newborn can have one.

•      Advantage over UTMA and UGMA accounts: tax-deferred growth. UTMA and UGMA accounts are taxable each year as investments grow. A Trump Account is not.

•      For college savings: the 529 is still more tax-efficient. Qualified 529 withdrawals come out completely tax-free. Trump Account growth is still taxed as ordinary income.

•      What is unused in a 529 can be transferred to a Roth IRA in the child's name if it meets certain guidelines

•      The Trump Account shines as a supplement, not a replacement. Best for families who have already funded a 529 and want to do more, or who want flexibility beyond education costs.

Have a child at home and want to think through how a Trump Account fits your family's plan?

Whether you're a family in Lexington thinking about opening a Trump Account alongside a 529, a custodial account, or a Roth, I would be glad and honored to sit down with you and walk through what makes sense for your specific situation.