Starting July 4, 2026, a new type of tax-advantaged investment account becomes available to American children: the 530A account, more commonly known as a “Trump Account”.
Created under last year’s One Big Beautiful Bill Act (OBBBA), these accounts are being promoted as a way to give kids a financial head start. For children born between 2025 and 2028, the federal government will seed the account with a one-time $1,000 contribution.
Naturally, clients have started asking us whether they should open one. The short answer is that 530A accounts are worth understanding, but in most cases, they are not a replacement for the planning tools families already use.
Here is a look at how 530A accounts work and how they can supplement an existing estate/gifting strategy.
How a 530A Account Works
A 530A account is best thought of as a special-purpose Traditional IRA for minors. A few key features:
- Eligibility: Any child under 18 with a Social Security number can have an account opened on their behalf.
- Government seed contribution: Children born between January 1, 2025, and December 31, 2028, will receive a $1,000 federal contribution once the account is opened.
- Annual contribution limit: Up to $5,000 per year, in aggregate, from parents, grandparents, friends, or even employers as a benefit. Unlike a custodial Roth IRA, the child is not required to have earned income.
- Investment restrictions: Before age 18, funds must be invested in low-cost mutual funds or ETFs that track a broad U.S. market index. Funds must be at least 90% invested in U.S. companies and carry an expense ratio of 0.10% or lower.
- Tax treatment: Contributions are made with after-tax dollars (no deduction going in). Growth is tax-deferred, and withdrawals are taxed as ordinary income.
- At age 18: Prior to age 18, no distributions are permitted. On January 1st of the year the child turns 18, the account converts to standard Traditional IRA rules. Withdrawals before age 59½ generally trigger ordinary income tax plus a 10% penalty, with the usual exceptions for qualified education expenses – a first-time home purchase (up to $10,000), birth or adoption costs (up to $5,000), and certain medical or disability situations.
Where 530A Accounts Fall Short
On the surface, “tax-deferred growth for a child” sounds appealing. The problem is that other savings vehicles families are already using do the job better.
Let’s see how 530A accounts stack up against existing planning tools…
529 Plan
A 529 remains the strongest tool for education savings. Qualified withdrawals are completely tax-free, and many states offer a deduction or credit on contributions.
By contrast, using a 530A account to pay for college means the earnings come out as ordinary income, and the withdrawal may also trigger the Kiddie Tax on the student’s return. For families saving specifically for education, the 529 wins on every measure.
Custodial Roth IRA
When a child has earned income (a summer job, modeling, paid tutoring), a custodial Roth IRA is the gold standard for retirement savings. Contributions grow tax-free and qualified withdrawals are tax-free.
The ordinary income tax treatment of the 530A account cannot match that. The trade-off, of course, is that a Roth requires earned income — which is exactly the gap 530A accounts are designed to fill.
Custodial Brokerage (UTMA/UGMA)
UTMA and UGMA accounts offer flexibility that 530A accounts do not. Funds can be used for anything that benefits the child — a wedding, a first car, a down payment, starting a business — not just retirement.
There are a couple of important caveats when considering custodial accounts. Long-term capital gains rates apply, which are typically more favorable than ordinary income — but the Kiddie Tax claws some of that benefit back: unearned income above $2,700 (2026) is taxed at the parent’s marginal rate while the child is a minor. In addition, custodial assets count more heavily than parental assets in the financial aid formula, so they can reduce a student’s aid eligibility.
Where 530A Accounts Do Make Sense
Despite the drawbacks, there are a handful of scenarios where opening a 530A account is a clear win:
- Your child or grandchild was born between 2025 and 2028. The $1,000 government contribution is free money. Open the account, claim it, and let it grow. Even with no additional contributions, $1,000 invested in a broad index fund in the year the child was born could compound to roughly $80,000 by age 65, with an assumed rate of return of 7.0% (for illustrative purposes only).
- Your employer offers a contribution as a benefit. Some employers are expected to add 530A account contributions to their benefits package. If that becomes available to you, take it.
- Your child has no earned income, and you have maxed other vehicles. For families who have already funded the 529 and have no Roth option for the child, a 530A account is a legitimate way to set aside additional tax-deferred savings.
Savings Options for Children: Account-by-Account Comparison
| 530A Account | Custodial Roth IRA | 529 Plan | UTMA / UGMA | |
| Earned income required? | No | Yes | No | No |
| Annual contribution limit | $5,000/yr | $7,500 (2026); capped at earned income if lower | No federal limit; utilizes lifetime gift exemption above $19,000/yr | No federal limit; utilizes lifetime gift exemption above $19,000/yr |
| Tax treatment of contributions | After-tax; no deduction | After-tax; no deduction | After-tax federal; deduction or credit in some states | After-tax; no deduction |
| Tax treatment on growth | Tax-deferred; withdrawals taxed as ordinary income | Tax-free growth and withdrawals | Tax-free growth and withdrawals if used for education | Capital gains taxed at favorable capital gains rates |
| Qualified use of funds | After 59½ any use – before qualified exceptions only | Contributions anytime; earnings tax-free after 59½ – before qualified exceptions only | Education expenses only — 10% penalty + tax on earnings for other uses | Any purpose — no restrictions |
| When child gains control | Age 18 converts to Traditional IRA rules | Age of majority (varies by state) | Parents retain control indefinitely | Age of majority (varies by state) |
| Financial aid impact | Not yet established | Not counted if child-owned | Parent asset ~5.6% assessment rate | Child asset ~20% assessment rate |
| Best for | Claiming free $1,000; families who have maxed other vehicles; children with no earned income | Child with a job or self-employment income; long-term retirement savings | College-focused families; state tax benefits | Flexible gifting; families unconcerned with financial aid impact |
Trump accounts (530A) available beginning July 4, 2026 – All figures as of 2026
For informational purposes only. Consult a qualified financial advisor for guidance specific to your situation.
Fitting It into the Plan
530A accounts are a creative addition to the planning landscape, but they are not a replacement for the tools most of our clients already use. The tax treatment, investment restrictions, and withdrawal rules make them inferior to a 529 for education, a custodial Roth for retirement (when earned income exists), and a UTMA/UGMA for general flexibility.
That said, the recommendation is straightforward:
- Take any free money you’re entitled to. If your child or grandchild qualifies for the $1,000 government contribution, open the account. If an employer offers contributions, accept them.
- Be cautious about contributing your own dollars. Your $5,000 of allowed annual contributions to a 530A account will almost always work harder in a 529, a custodial Roth, or a custodial brokerage.
- Keep planning opportunities in mind. A Roth conversion after the child turns 18 is a potential planning move that can increase the long-term value of these accounts.
Get in Touch
The right answer depends on the family. If you have a child, grandchild, or great-grandchild who may qualify for the government contribution, or if you are weighing how 530A accounts fit alongside the 529s and custodial accounts you already have in place, we are happy to walk through it together. Please reach out to Team Lake Oswego at [email protected] for a conversation.
