Trump Accounts

One provision of last year’s OBBBA created a new account type: the 530A, sometimes called a “Trump Account.” It’s being promoted as a way to save for college, a first home, or retirement. But what exactly is it—and does it make sense for college savings?

What Is a 530A?

A 530A is a new IRA-style account for children under 18. Like a traditional IRA, growth is tax-deferred. The key difference: the child does not need earned income in order to receive contributions.

Under the pilot program, children born between January 1, 2025 and December 31, 2028 are eligible for an automatic $1,000 deposit once the account is opened (after July 4, 2026), provided they are U.S. citizens with Social Security numbers. Contributions of up to $5,000 per year are allowed. Parents, guardians, employers, states and some foundations may contribute. Individual contributions are after-tax; federal and certain third-party contributions may be pre-tax.

Funds are locked until January 1 of the year the child turns 18. During this growth period, investments are limited to low-cost index funds. After that, the account functions much like a traditional IRA, with penalty-free withdrawals allowed for education and first-time home purchases.

If your child qualifies for the $1,000 deposit—or you’re eligible for employer or foundation contributions—open the account. Free money is free money. Invested at birth, that $1,000 could grow to roughly $80,000 by retirement, about $3,500 by age 18, or around $7,500 by age 30. To open the account, just file IRS form 4547 with your taxes or here.

Should You Contribute Your Own Money?

That’s a different question.

A 530A is tax-deferred, not tax-free. You’ll owe ordinary income tax on earnings when money is withdrawn. If used for college, the distribution could also trigger the Kiddie Tax. And because contributions are made with after-tax dollars, you must track basis. Withdrawals are prorated between basis and earnings. For example, if you contribute $1,000 and the account grows to $5,000, each withdrawal is 20% tax-free basis and 80% taxable earnings.

For education savings, a 529 plan is often more attractive. As long as funds are used for qualified higher education expenses, growth is completely tax-free. Your $1,000 that grows to $3,500 is worth the full $3,500.

For retirement savings, a Roth IRA is typically even more powerful. Qualified withdrawals are entirely tax-free, and contributions can be withdrawn at any time without tax or penalty. While a 530A doesn’t require earned income, you can use a 529 strategically and later roll funds into a Roth IRA (subject to limits) once your child has earned income—even from babysitting or yard work.

For example, invest $1,000 in a 529 at birth and later roll it to a Roth IRA. You'll have the same $80,000 in the Roth IRA by age 65, and the entire amount can be withdrawn tax-free. For someone in the 22% bracket, a taxable $80,000 withdrawal would mean $17,600 in federal taxes—leaving $62,400 before state taxes.

Bottom line: take the free $1,000 if you’re eligible, along with any third party contributions. But when deciding where to invest your own dollars for your child’s future, a 529 and/or Roth IRA will often provide better long-term tax advantages.