Trump Accounts are real, and they are… not that impressive.
They’re presented as a tax-advantaged way to invest for your children’s future: if you contribute the maximum amount, your child will be a millionaire! But wealthy parents know: there are already lots of tools available to help their children avoid paying taxes, including 529 accounts and custodial Roth IRAs.
Both of those options offer more tax advantage than Trump Accounts for families who can plan around their unique restrictions. The best apples-to-apples comparison for the Trump Account is with the more flexible but less tax-advantaged custodial brokerage account, under the rules established by the Uniform Transfers to Minors Act (UTMA). A custodial brokerage account is just a brokerage account owned by the child, but until the child turns 18 it’s managed by the parent. It offers modest tax benefits over holding assets in the parent’s name due to kiddie tax rules.
Comparing the two accounts, the tax advantage is more or less a wash because gains in a Trump Account are taxed as ordinary income at withdrawal (typically higher tax rate), rather than long-term capital gains for a custodial brokerage account (typically lower tax rate). The higher tax rate of Trump Account withdrawals almost perfectly cancels out the dividend drag in the custodial brokerage account. Which account wins is very sensitive to model parameters, particularly the allocation between stock value appreciation and dividend yield and the expected tax rate at withdrawal time.
On top of all that, Trump Accounts come with additional restrictions, including:
- Contributions are limited to $5,000 per year (excluding the pilot program and charity handouts)
- Investment options are limited to U.S. equities
- Withdrawals follow normal IRA rules, meaning most of the money can’t be accessed until age 59.5 (subject to standard IRA exclusions)
The only unconditionally better tax benefits come from:
- The $1,000 handout from the pilot program, which comes straight out of the federal deficit for your grandchildren to pay back in the future
- Contributions up to $2,500 per year via an employer-sponsored plan, if your employer offers one
- Any handouts from charities, such as the $250 per child donated by the Dell family to children born in ZIP codes with median income below $150,000
For some reason, lots of mainstream media and financial institutions are tiptoeing around the obvious conclusion: You should take the government and charity handouts—capitalist-flavored socialism—and max out the tax-advantaged employer-sponsored contributions if available, but otherwise, a maxed-out Trump Account should be fairly far down the list of things to provide for your children. At best, it’s barely better than funding a regular brokerage account.
Don’t believe me? Run the math for yourself below.
Caveats
- The “after-tax account value” shows hypothetical proceeds if liquidated at an average of the specified withdrawal tax rate: Trump Account gains taxed as ordinary income, custodial brokerage unrealized gains taxed as long-term capital gains. In practice, liquidation of the entire account in a single year will trigger additional taxes, so this hypothetical account value only provides an estimate of the value that could be extracted from the account if withdrawn slowly, not accounting for future growth after the projection end year.
- All dollar amounts are in 2026 constant dollars, assuming that all relevant contribution limits and tax bracket cutoffs are accurately adjusted for inflation.
- All dividends are taxed as if they are qualified dividends, making the custodial brokerage ending amount a very slight overcount given the S&P 500 buy-and-hold strategy.
- Investment return rate is assumed to be net of expenses, and expenses are assumed to be equal for both account types. Trump Accounts cap expense ratios for qualified funds at 0.1%.
- Don’t get your investment advice from random people on the internet—check the math and validate with a financial advisor if you have any doubts.