The window to fund a Trump account is now open, and for families with children or grandchildren under 18, this may be one of the simplest and most powerful long-term tax moves available. Fund it consistently, and a modest yearly contribution can grow into a life-changing balance decades down the road. Here is how it works, what it can become, and the mistakes that can undo the whole strategy.
What Is a Trump Account?
A Trump account is a custodial traditional IRA created under new Internal Revenue Code Section 530A for a child who has not turned 18 by the end of the year the account is established. A few features set it apart:
- The annual contribution limit is $5,000 per child, indexed starting after 2027. That $5,000 is the combined total from everyone who contributes, not per person. If a grandparent puts in $3,000, the parents can only add $2,000.
- There is no earned income requirement. Unlike a regular IRA, a child does not need wages to contribute. Even a one-year-old qualifies.
- Contributions are not deductible. They go in after tax and become basis, which is exactly what makes a later Roth conversion attractive.
- The money must be invested in a low-cost, broad U.S. equity index fund. Eligible investments are mutual funds or ETFs tracking the S&P 500 or a similar index of primarily American companies, with annual fees capped at 0.10%. No cash, no bonds, no individual stock picking.
- No withdrawals before age 18. Generally, nothing can come out before January 1 of the year the child turns 18. After that, standard traditional IRA rules apply.
- Newborns may receive a $1,000 federal seed. The government makes a one-time $1,000 pilot contribution for eligible U.S. citizen children born after December 31, 2024, and before January 1, 2029. That $1,000 does not count against the $5,000 annual limit.
What Is The Long-Term Growth Potential?
Consider funding $5,000 at the start of each year from age 1 through 17. That is $85,000 out of pocket over 17 years. Under a hypothetical 8% average annual return, that balance could grow to roughly $4.6 million by age 60 and, with another decade of compounding, potentially several million more by age 70. These figures are illustrative only. Actual results depend on market returns, fees, future law changes, and how the account is managed. The key lesson is that the age of the child matters far more than the size of any single contribution, because time is doing the heavy lifting.
Why Should Farm Families Pay Attention to Trump Accounts?
Because a Trump account has no earned income test, it does not use up a child’s wages. That means a child who earns legitimate wages working on the farm can fund both a Trump account and a Roth IRA in the same year. For 2026, a child with proper compensation can contribute up to $7,500 to a Roth or traditional IRA on top of the $5,000 Trump account. A 15-year-old earning real wages running the grain cart could have both working at once. Most families only take advantage of one.
What Should Employers Know About Trump Accounts?
If you have employees, you can set up a Trump account contribution program and contribute up to $2,500 per year to the account of a minor employee or an employee’s dependent. That contribution is not taxable income to the employee, and the employer generally deducts it as compensation. It is a genuine recruiting and retention tool. Just remember that the employer contribution counts against the same $5,000 annual cap, so coordinate with the family.
What Happens to a Trump Account at 18?
Once the account becomes a traditional IRA on January 1 of the year the child turns 18, some or all of it can be converted to a Roth IRA. Because contributions went in after tax, only the growth is taxable at conversion.
Here is where families get hurt. If the child is still a dependent or a full-time student under 24, the kiddie tax can push the conversion income into the parents’ higher bracket, defeating the entire purpose. For 2026, the kiddie tax taxes a child’s unearned income above $2,700 at the parents’ marginal rate. However, a child who earns enough wages to provide more than half of their own support can escape the kiddie tax. This is another reason to pay farm-working children appropriate wages.
You can also gift the child cash to cover the conversion tax. That gift fits comfortably within the $19,000 annual gift tax exclusion for 2026, and keeps the full converted balance in the Roth.
Trump Account Mistakes to Avoid
- Do not convert during the college years if the kiddie tax applies and you are in a high bracket. This can be an expensive mistake. Wait until the child is independent and filing on their own.
- Do not let multiple people fund the account without coordinating. The $5,000 limit is per child, not per contributor. Excess contributions carry a 6% annual penalty until removed.
- Do not assume the child will leave it alone. At 18, the account belongs to them. Have the conversation early.
- Do not skip the $1,000 seed for an eligible newborn. It is free money that does not use any of the $5,000.
- Do not ignore your state. Some states may not conform, and a few may tax the earnings annually. Check yours.
- Do not treat this as a college fund. Money for tuition generally belongs in a 529.
Conclusion
A steady $85,000 spread over 17 years, left to compound, could grow into a remarkable sum for a child or grandchild, and much of it can eventually come out tax-free through a well-timed Roth conversion. Open the account, fund it every year, keep contributors coordinated, and leave the Roth conversion alone until the kiddie tax is behind you.
Have questions about whether a Trump account fits your family’s plan? Contact our team at MBE CPAs for guidance.
This material is for general informational purposes and is not individualized tax advice. Trump account rules are new and subject to further IRS guidance. Consult your tax advisor before acting.