Those goals can include a child’s higher education, purchasing a home, or even retirement decades later.<\/p>\n
The accounts are notable because they encourage investing from birth, allowing investment returns to compound over an unusually long period.<\/p>\n
“The power of compounding is amazing,” said Levine.<\/p>\n
He noted that financial advisers routinely encourage workers to begin saving when they first enter the workforce. Trump accounts simply move that starting point back to infancy.<\/p>\n
Levine explained how the accounts work\u2013\u2013contribution limits, investment options, tax treatment\u2013\u2013and when families may be better served using a 529 college savings plan instead.<\/p>\n
Below is a transcript of the interview with Levine, edited for brevity and clarity.<\/strong><\/p>\n Jeff Levine: <\/strong>Welcome back to the Focus on Finance Forum, your place to ask questions and stay up to date on the latest developments in personal finance.<\/p>\n I’m Jeff Levine, chief planning officer for Focus Partners Wealth, joined by my good friend Bob, Mr. Retirement, Robert Powell. Bob, it’s great to be back with you. I understand you’ve received quite a few questions about a relatively new type of account.<\/p>\n Robert Powell: <\/strong>Professor Jeff, people are really curious about Trump accounts. They want to know how they’re funded, what they can invest in, the tax consequences, whether there are limitations and much more. I’m eager to hear your thoughts.<\/p>\n Jeff Levine: <\/strong>Let’s start with the basics because many people may be asking, “What is a Trump account?”<\/p>\n A Trump account is a new type of savings account created under the One Big Beautiful Bill Act, the tax legislation enacted in 2025. It was designed as a tax-advantaged savings vehicle for children under age 18.<\/p>\n The idea is to help young people begin saving early for future expenses, whether that’s college, buying a home or even retirement decades down the road.<\/p>\n As of the time we’re recording this interview, no Trump accounts yet exist because, although they were created by law in 2025, they do not become available until after July 4, 2026<\/strong>.<\/p>\n Jeff Levine: <\/strong>The general contribution limit is $5,000 per year<\/strong>, indexed for inflation over time.<\/p>\n Unlike an IRA, there is no earned income requirement. As long as a child has a Social Security number and the account has been established, contributions can be made.<\/p>\n One unique feature is the federal government’s seed contribution.<\/p>\n Children born between 2025 and 2028<\/strong> are eligible for a $1,000 government contribution<\/strong> once the account is established. That contribution does not count toward the annual $5,000 contribution limit.<\/p>\n Robert Powell: <\/strong>There’s also the possibility that employers could contribute up to $2,500<\/strong>, correct?<\/p>\n Jeff Levine: <\/strong>That’s right.<\/p>\n An employer may be able to contribute up to $2,500<\/strong> as a tax-free employee benefit. That said, there are a number of technical and administrative issues that could make widespread adoption difficult, particularly in the early years.<\/p>\n Separately, the Dell family has established a fund that will provide an additional $250 contribution<\/strong> for many children living in moderate- and lower-income communities.<\/p>\n As a result, many eligible children could receive $1,250<\/strong> at the outset, consisting of the government’s $1,000 contribution plus the Dell family’s additional $250.<\/p>\n Robert Powell: <\/strong>My understanding is that investments are generally limited to low-cost index funds. And eventually withdrawals are taxed as ordinary income.<\/p>\n Jeff Levine: <\/strong>That’s generally correct.<\/p>\n Contributions are made with after-tax dollars, so they are not deductible.<\/p>\n Because these accounts are built on the framework of a traditional IRA, the original contributions become basis, while future earnings are taxable.<\/p>\n For example, suppose a parent contributes $5,000<\/strong> and that account eventually grows to $20,000<\/strong>.<\/p>\n If the child later withdraws $3,000<\/strong>, 25%<\/strong> of that withdrawal represents the original contribution and is tax-free. The remaining 75%<\/strong>, representing investment earnings, would generally be taxed as ordinary income.<\/p>\n Investment choices are intentionally limited.<\/p>\n Assets generally must be invested in low-cost index funds or similar funds tracking a U.S. stock index. While that limits flexibility, broad-market index funds have historically been appropriate long-term investments for young investors.<\/p>\n No withdrawals are permitted until the child reaches age 18<\/strong>. At that point, the account begins operating much like a traditional IRA.<\/p>\n Jeff Levine: <\/strong>The biggest advantage of these accounts is time.<\/p>\n I’ve run simple projections showing that if someone contributes the annual maximum from birth until age 18, it’s reasonable to envision the account growing to several million dollars by retirement, assuming prudent long-term investment returns.<\/p>\n Bob, you and I often talk about how important it is to begin saving at age 20 rather than waiting until age 30.<\/p>\n This account pushes that starting point all the way back to birth.<\/p>\n The earlier savings begin, the harder it becomes to replicate that growth by starting later in life.<\/p>\n Robert Powell: <\/strong>One practical question I hear frequently is whether families should use a Trump account or continue saving in a 529 plan if the primary goal is paying for college.<\/p>\n Jeff Levine: <\/strong>If your primary objective is college funding, I still believe the 529 plan<\/strong> is the stronger option for most families.<\/p>\n First, 529 plans generally allow much larger contributions.<\/p>\n Second, qualified withdrawals for higher education are completely tax-free, while investment earnings withdrawn from a Trump account are generally taxable as ordinary income.<\/p>\n Third, many states provide state income tax deductions or credits for 529 contributions. There are currently no comparable state tax benefits for Trump accounts.<\/p>\n Finally, 529 plans offer considerably more flexibility.<\/p>\n Parents retain ownership of the account and can change beneficiaries if circumstances change. By contrast, once a Trump account beneficiary reaches age 18<\/strong>, the account belongs to that child, with much less flexibility for parents.<\/p>\n For families focused on paying for college, the 529 plan continues to be the better tool in most situations.<\/p>\n Every family’s circumstances are different, but that’s generally where I come out.<\/p>\n Robert Powell: <\/strong>One practical concern is recordkeeping.<\/p>\n People with nondeductible IRAs already know the challenges of tracking basis. If someone owns one of these accounts from birth until retirement, how will they know what portion represents basis decades later?<\/p>\n Jeff Levine: <\/strong>That’s going to require careful recordkeeping by families, financial advisers and tax professionals.<\/p>\n Much like nondeductible IRAs use IRS Form 8606<\/strong>, I would expect similar reporting for Trump accounts.<\/p>\n Interestingly, although Trump accounts are built on the IRA framework, the law treats them separately when applying the pro rata rules.<\/p>\n Another planning opportunity arises after the child begins paying taxes based on his or her own income rather than under the kiddie tax rules.<\/p>\n At that point, the individual may be in a relatively low tax bracket, creating an attractive opportunity to convert the account to a Roth IRA over several years.<\/p>\n That strategy could eliminate future basis tracking while allowing future investment growth to occur tax-free.<\/p>\n I think that’s one of the more interesting long-term planning opportunities these accounts create.<\/p>\n Read the IRS’s most recent guidance on Trump Accounts.<\/p>\n Robert Powell: <\/strong>It sounds like the bottom line is fairly straightforward.<\/p>\n If your primary goal is paying for college, a 529 plan probably remains the better choice. But if you’re looking to build long-term retirement savings or help a child accumulate wealth over many decades, a Trump account could be another useful tool.<\/p>\n Jeff Levine: <\/strong>That’s exactly how I see it.<\/p>\n I’m generally a fan of tax-advantaged accounts because anything that legally reduces taxes can help families build wealth.<\/p>\n The key is matching the right tool to the right objective.<\/p>\n If you’re trying to drive a screw, use a screwdriver. If you’re driving a nail, use a hammer.<\/p>\n The same principle applies to financial planning. Choose the account that’s designed to solve the problem you’re trying to address.<\/p>\n Related: The new student loan ‘RAP’ plan is here: See if you win or lose<\/strong><\/p>\n #Trump #Accounts #Explained #Contribution #Rules #Taxes #Compare #Plans<\/p>\n","protected":false},"excerpt":{"rendered":" Starting July 4, parents and grandparents will have a new way to begin investing for children from birth, complete with a $1,000 government contribution for many eligible newborns. But in… <\/p>\n","protected":false},"author":1,"featured_media":10407,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[246],"tags":[2822,12215,12214,9165,649,207,417,260],"class_list":["post-10406","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-popular","tag-accounts","tag-compare","tag-contribution","tag-explained","tag-plans","tag-rules","tag-taxes","tag-trump"],"_links":{"self":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/10406","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10406"}],"version-history":[{"count":0,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/10406\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/media\/10407"}],"wp:attachment":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10406"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10406"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10406"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What are Trump accounts?<\/strong><\/h2>\n
![](\"https:\/\/www.thestreet.com\/.image\/NDA6MDAwMDAwMDAzMTAwODE0\/thestreet_chart_trump-account.jpg?profile=rss\")
<\/p>\n<\/figure>\nHow much can families contribute?<\/strong><\/h2>\n
Can employers or private donors contribute?<\/strong><\/h2>\n
What investments are allowed inside a Trump account?<\/strong><\/h2>\n
How powerful could long-term compounding become?<\/strong><\/h2>\n
Are Trump accounts better than 529 plans for college?<\/strong><\/h2>\n
How will tax reporting work over time?<\/strong><\/h2>\n
What is the bottom line for families?<\/strong><\/h2>\n