How Trump Accounts compare to other savings plans for your child

By Julian Torres, CNN

New York (CNN) — On July 4, one week from today, parents across the United States will be able to start contributing to a Trump Account, the newest option to invest in their child’s future.

The investment accounts have attracted a wave of interest from eligible families who want to claim the $1,000 government contribution for children born between 2025 and 2028.

But these accounts are entering an already crowded landscape of parental saving options, from 529 plans to custodial investment accounts and custodial Roth IRAs.

Choosing the right account can be confusing, since many can be used for similar goals — like education or long-term savings — but differ in their rules, tax benefits and tradeoffs.

Financial experts say the key isn’t chasing government bonuses — it’s choosing the account that best matches how the money will actually be used.

Start with the goal, not the account

When parents are deciding among the many account options available, the first step is defining the purpose of the money, noted Timothy McGrath, a certified financial planner and managing partner at Riverpoint Wealth Management.

“The question that (parents) need to ask is: ‘What is our objective?’” he said. Narrowing your focus helps to match your goals with the account best suited for them.

For example, a 529 plan can offer unmatched tax advantages for education savings, while a custodial brokerage account gives greater flexibility to use funds for major milestones, like a first home or general financial support. For long-term retirement savings, a custodial Roth IRA can offer a unique tax-free path to growth (and it can also be used penalty free for shorter term goals like buying a house).

Where Trump Accounts fit in

Trump Accounts are designed as custodial investment vehicles for long-term wealth-building, with limited investment options and a prohibition on withdrawals in all but one instance* before a child turns 18.

Unlike a custodial Roth IRA, families may contribute to Trump Accounts even if the child doesn’t earn income.

Parents, relatives, friends and employers may, combined, contribute up to $5,000 per year, which can accelerate your child’s savings long before they start working. Contributions from governments or nonprofits do not count against that limit.

And, for those eligible, the $1,000 federal contribution makes opening the Trump account a “no-brainer,” said Howard Davidoff, a professor at the Murray Koppelman School of Business at Brooklyn College.

But, beyond that, considering the potential limitations of the account becomes much more important, he added.

How Trump Accounts compare to other options

Control of a Trump Account transitions to the child at age 18. From there it functions in a similar way to a traditional IRA.

That means withdrawals made before the child turns 59-1/2 will be subject not only to ordinary income tax but also a 10% early withdrawal penalty, unless the money is used for certain qualified expenses that apply to a range of financial goals – among them, higher education, buying a first home, and birth or adoption costs.

But while the account can serve multiple purposes, it is often not the most efficient option for any one purpose.

Accounts designed for a specific goal — such as 529 plans for education or Roth IRAs for retirement — can typically offer stronger tax advantages or greater flexibility tailored to that purpose.

If parents’ main goal is to save for college, the 529 is a better choice, McGrath said. Besides being able to contribute much more to 529s, he explained, “A lot of times, you get a state tax deduction, [and] there’s no taxes on the growth.”

For long-term retirement savings – or even some shorter term expenses – contributing to a custodial Roth IRA can offer greater benefits than a Trump Account if the child has earned income, Davidoff said. “You’ve got tax-free income growth earnings for the rest of your life.”

By comparison, Trump Accounts allow contributions regardless of earned income, enabling an earlier start to a child’s wealth accumulation. The tradeoff is that withdrawals are taxed.

What about brokerage accounts?

For families focused on helping their child or general financial support, custodial brokerage accounts may provide more flexibility, allowing funds to be used for any purpose that benefits the child with no contribution limits — though with fewer tax advantages than Trump Accounts because they don’t allow for tax-deferred growth.

Compared with these options, Trump accounts trade flexibility for structure.

That structure can be a drawback for some families, particularly those who may need emergency access to funds before the child reaches adulthood. But it also may benefit investors who struggle to stay disciplined over time.

The structure forces you to stay invested, which can help people avoid emotional decisions, like selling early, Davidoff said.

Still, if a family is only going to be able to save in one type of vehicle, financial advisers caution against choosing a Trump Account solely on the basis of the federal government incentive and the convenience of having it already opened.

“My concern is people are going to be so excited about (the) $1,000, they might use that when it might not be the best vehicle for them or their children on a long-term basis,” said McGrath.

The bottom line

Davidoff emphasized that the most important asset parents and children have is time. “Compounding growth is a miracle in and of itself. But you’ve got to start early,” he said.

In that regard, a Trump Account started at birth with $1,000 in federal seed money can offer a great advantage, especially if the parents and their employers also put in money from year 1 of a child’s life.

But the $1,000 incentive shouldn’t drive the decision alone.

The “best” account – or accounts – for your family depends entirely on your goals. “Parents need to have a plan,” McGrath said. “Once you know that, you can make a decision.”

The-CNN-Wire
™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

*The one exception to making withdrawals before a child turns 18: If the beneficiary is disabled, the family may rollover the money into a tax-advantaged ABLE savings account when the child is 17. Withdrawals from ABLE accounts are excluded from income tax for disability-related expenses. And assets in the account “are generally excluded from asset tests for benefit programs such as Supplemental Security Income,” according to the Congressional Research Service.