What Are Trump Accounts and How Do They Work?

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What Are Trump Accounts and How Do They Work?

You may have heard about Trump accounts. Up until the last couple of weeks, the details have been murky. We knew they were coming and knew some general traits about them but didn’t really understand how they would work. Well, that’s changed, because now they are now live. They launched on July 4th in celebration of the nation’s 250th birthday. So, we can talk details now. You might be wondering if they are a good thing you should consider. It depends on who you ask. Like all financial solutions, there are pros and cons. My goal in today’s episode is not to convince you to open or not to open a Trump account, but just to share some of the facts – the pros and cons of the account.

Let’s start with the Pros:

The government will provide a one-time starting contribution of $1,000 for U.S. Citizens that were born between in the years 2025 through 2028. $1,000 may not sound like much – but the power of compounding interest can work magically if this is left alone until retirement. If the account was funded with $1,000 at birth and if it was able to earn a very modest 8% over a 65-year period, you might have almost $150,000 at retirement age. If it were able to earn a 10% return, this number could be almost $500,000. Isn’t that amazing? And that is not even adding any additional money to the account. Compounding interest is the 8th wonder of the world – and a little money left alone over time can multiply exponentially.

Parents can contribute non-earned income while the child is young. Under current rules, you can’t start a Traditional IRA or ROTH IRA until a child has income of their own to contribute. In other words, parents can’t contribute to a retirement account on behalf of their kids when they are young. The Trump account allows you to contribute up to $5,000 per year on behalf of your child from the day they are born. So, if you started with $1,000 and then you contributed $5,000 per year until they earned 18, and if you got an 8% annual average return, you might have $200,000 on their 18th birthday. Then, if they just left it alone until 65 at an 8% annual average rate of return, your child could have $6mm at age 65. Dizzying numbers. What makes them big is time. Time is the most important ingredient when saving for the future. If an account balance earns 8% it doubles every 9 years. At first, it doesn’t seem like much, but once the snowball gets rolling it is massive in its impact.

The child can roll it into an IRA at age 18. They could choose a Traditional IRA, or they could convert it into a ROTH IRA, paying taxes at that time. Now why would you want to pay taxes at age 18? Because the government allows the growth on these dollars to be tax deferred. You can continue deferring these toward retirement, or you could pay the taxes now and let all the growth over the next 47 years be tax free. This allows all future gains to escape taxation. Another, in the words of President Trump “yuge” benefit. You don’t have to do it. But it could be beneficial if you do.

Now let’s move on to the cons:

You lose control of that account when the child turns 18. Theoretically, if the child wanted to empty it out at that time, they could. This would incur a 10% penalty for early withdrawal, and they would pay income tax on it. So, let’s say that you started a Trump account when a child was born with $1,000 and never added anything to it. If it grew at an 8% average annual return it could be worth about $4,000 at age 18. The child could pay the 10% penalty + income tax, let’s say at a 10% rate, and end up clearing about $3200. The child might not have the foresight to understand that if they let this alone, they could have between $150,000 and $500,000. So, you are depending on an 18-year-old to exercise wisdom – and depending on the child that may or may not be suspect. So…the parent has control until they are 18 and then the child takes over.

You can’t open one of these with your current financial advisor. You open these directly online by downloading an app at trumpaccounts.gov. For now, the account resides with the U.S. Treasury. Now when the child turns 18 and converts it to an IRA, you can transfer it to an advisor, but for now they stay with the custodian the US Treasury chooses. So, you are somewhat on your own to get one set up.

You must go to the IRS website and fill out a new form 4547 to request the $1,000 seed money. This may be easy to do, but it’s another step that needs to be taken in getting an account set up. To be clear, you can set up a Trump account for a child even if they weren’t born between 2025 and 2028, you just won’t get the $1,000 start-up benefit.
So…I’ve given you 3 pros and 3 cons to consider. There’s much more you can learn about the accounts online, but perhaps this at least gets you started.
If you are interested in saving for the future and maximizing a fixed return on those savings, our Foundation Financial Solutions division offers fixed annuity strategies that pay fixed rates a good bit higher than CD’s. These are not FDIC insured strategies, but they are fixed income strategies that we are happy to tell you more about to see if they meet your savings needs. Contact us at 731-554-2423 to learn more. In the meantime, we hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on July 14, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.