Families have several ways to save for a child's future, including 529 plans, custodial accounts, and traditional savings accounts. In 2026, families gained another option: Trump Accounts, a new type of tax-advantaged investment account for children.
These accounts are notable because contributions can be made even if the child does not have earned income. Some eligible children may also receive an initial contribution from the federal government.
So, how do these accounts work, and how do they compare with other ways to save for a child's future?
How Do Trump Accounts Work?
A Trump Account can generally be opened for a child under age 18 who has a valid Social Security number. Parents, grandparents, relatives, friends, and certain organizations or government programs may contribute.
The child does not need to have earned income, which allows investing to begin well before they enter the workforce.
Children who are U.S. citizens and were born between January 1, 2025, and December 31, 2028, may also qualify for a one-time $1,000 government contribution. The child must meet the program's eligibility requirements, and a parent or guardian must complete the necessary application process.
These accounts must be opened directly through the program's official government process rather than through a traditional brokerage or advisory firm.
What Are the Contribution and Investment Rules?
Family members and other eligible contributors may contribute to these accounts, subject to the program's annual contribution limits. Some eligible children may also receive government or other qualifying contributions under the program's rules.
One of the account's primary advantages is time. Starting early gives savings more opportunity to benefit from long-term market growth. Of course, investment returns are never guaranteed, and account values will fluctuate with market conditions.
During the account's growth period, investment options are generally limited to qualifying low-cost index funds and ETFs that track broad segments of the U.S. stock market.
Because withdrawals are generally not permitted while the child is a minor, families should view the account as a long-term savings vehicle rather than a source of funds for near-term expenses.
What Happens When the Child Turns 18?
Beginning January 1 of the year the child turns 18, the account transitions to rules that are generally similar to those of a traditional IRA. At that point, the child has more flexibility in how the account is managed and when money is withdrawn, subject to applicable tax rules.
Any withdrawal of pre-tax amounts, including investment earnings and certain contributions, may be subject to ordinary income taxes. In some situations, an additional early-withdrawal penalty may also apply.
Unlike a 529 plan, the account is not designed exclusively for education expenses. The funds may ultimately be used for a variety of purposes, including education, a first home purchase, retirement, or other financial needs, depending on the circumstances.
Families should keep this flexibility in mind when deciding how the account fits alongside other savings strategies.
How Does It Compare with Other Ways to Save for a Child?
No single account is right for every goal. The best choice may depend on when the child is likely to need the money, how it may be used, and how much flexibility the family wants.
Each account type addresses a different planning need:
- A 529 plan is designed primarily for education. Qualified withdrawals can generally be made tax-free for eligible education expenses.
- A custodial account may offer more flexibility, but it comes with different tax and ownership considerations.
- A custodial Roth IRA can help a child begin saving for retirement once they have earned income.
- A Trump Account allows families to begin investing for a child before they have earned income, though access to the funds is generally restricted during childhood.
How Does Saving for a Child Fit into Your Financial Plan?
As with any savings strategy, the right approach to saving for your child’s future depends on your family's goals, timeline, and overall financial picture. Understanding how each option works can help you make more informed decisions for the people you care about most.
If you would like to discuss how saving for a child or grandchild fits into your broader financial plan, we're here to help. We can help you evaluate education savings strategies, retirement priorities, and other long-term family goals. You can schedule a complimentary introductory meeting with our team in Glastonbury or Wilton, Connecticut.
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Tom Hine is a CERTIFIED FINANCIAL PLANNER® professional and owner of Capital Wealth Management. With over 30 years of experience, Tom works with individuals and families on financial planning, retirement strategies, and investment management. He has a particular passion for special needs financial planning, shaped by his personal experience helping raise his sister Amy, who was born with a severe chromosomal condition. Tom understands the emotional and financial challenges that come with caring for a loved one with disabilities and helps clients navigate complex issues like preserving government benefit eligibility, coordinating Special Needs Trusts and ABLE accounts, and long-term care planning. With offices in Glastonbury and Wilton, CT, Tom serves clients across Connecticut and throughout the U.S. Schedule a complimentary introductory meeting with Tom.
The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient's marginal rate and subject to a 10 percent penalty. By Investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Tax laws and provisions may change at any time. Death of the contributor prior to the end of the five-year period may result in a portion of the contribution to be included in the contributor’s estate. Please consult a qualified tax professional to discuss tax matters.
Prior to making an investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.