MML# 084: All about Trump Accounts, and where they fit in your plan.

Trump Accounts opened for business on July 4. If you have grandchildren, chances are you've already wondered whether you should be funding one.

It's a fair question. It's a brand new account type, it has a headline number attached to it, and the actual rules are sitting inside a proposed regulation that nobody outside a tax department is going to read.

So let's walk through it.

Take the free $1,000

Every U.S. citizen child born from 2025 through 2028 gets a $1,000 federal deposit into a Trump Account. No income limits on the family. No matching contribution required from you.

That money is free. Claim it.

You can open the account at trumpaccounts.gov or with IRS Form 4547. If you have a grandchild born in that window, this is a 20-minute administrative task and I can't think of a reason to skip it.

Whether you add your own money is a different question entirely.

Where the tax actually lands

Family contributions go in with after-tax dollars. No deduction for you, no deduction for the parents.

The money then grows with no annual tax bill, which is worth something.

But every dollar of growth comes out as ordinary income. There's no capital gains treatment inside a Trump Account, ever. So the family's money gets taxed going in, and the growth gets taxed coming out at the highest rate the code offers.

Now compare that to a plain custodial brokerage account holding a boring index fund. Same after-tax dollars going in. There's a small annual tax drag on dividends, which the kiddie tax rules mostly absorb (for 2026, the first $1,350 of a child's unearned income is untaxed and the next $1,350 is taxed at the child's own rate).

Then long-term capital gains rates on the way out, plus a full step-up in basis if the account is still sitting there at death.

That's a real contest. The newer account doesn't win it automatically.

Locked for 18 years, and one investment only

There are no distributions from a Trump Account during the growth period. None. The only exceptions are the death of the beneficiary or a rollover to an ABLE account.

The investment menu is one item. A mutual fund or ETF tracking the S&P 500 or another broad U.S. equity index, with an expense ratio at or below 0.10%. You can't move to cash or bonds, not even in a bad year.

And believe me, I know nobody wants to hear a financial advisor start talking about lockups and expense ratios. But if markets drop 40% the year before your grandchild turns 18, you're going to sit there and watch it happen.

On January 1 of the year the child turns 18, the account becomes a traditional IRA in their name. They control it outright from that day, and they're the only person who can contribute to it after that.

The move at 18

Write this part down somewhere.

An 18-year-old usually has almost no income. Converting that account to a Roth IRA in that window can cost close to nothing in tax, and it buys decades of tax-free growth on the back end.

Miss the window and every dollar of growth stays ordinary income forever.

If you fund one of these, put a note in whatever file you keep for your grandchildren. That conversion is where most of the value lives.

Two things that bite

The $5,000 annual limit is combined across everyone. Parents, grandparents, and any employer contribution all share the same pool. If you fund it without knowing your daughter already maxed it, the excess draws a 6% excise tax every year until someone pulls it back out.

The second one is subtler. Because the child can't touch the money until 18, contributions may count as gifts of a future interest, which means your $19,000 annual exclusion may not shelter them. It's my understanding that this is still unsettled.

Custodial accounts don't have that problem. If you're already using your exclusion elsewhere, check with your tax professional before you fund anything.

You could also just keep it in your own name

There's a fourth option here. Open an ordinary taxable brokerage account in your own name and earmark it for a grandchild, either in your head or in your estate documents.

You give up the kiddie tax break doing this. Every dividend and realized gain lands on your return at your rate, and after a career of legal income that rate probably isn't gentle.

What you get back is control. A custodial account belongs to the child the day you fund it, and somewhere around 18 or 21 they own it outright and can spend it on whatever they want.

Money in your own name stays yours. You decide when it moves and whether it moves at all.

Two more things. The account gets a full step-up in basis at your death, so whoever inherits it starts clean. And it stays inside your taxable estate, which only matters if you're anywhere near the estate tax exemption.

So where does that leave you

Take the $1,000, if eligible. It costs you nothing but a form.

Past that, the answer depends on the grandchild, the state you live in, and what you're already doing for them. A custodial Roth IRA beats all of this on paper once a grandchild has real earned income from a summer job.

And if what's actually bothering you is the thought of handing a 21-year-old a pile of money, keep it in your own name and stop worrying about the tax angle.

Chances are you'll end up doing some combination. Just make it a decision you actually made.

If you're thinking through how the next generation fits into your own retirement plan, that's the conversation I have with clients every week. Reply and tell me where you're at.

That's it for this week. Thanks for reading.

Cheers, David

For educational discussion, not tax or legal advice. Trump Account rules rest partly on proposed regulations and remain subject to change. State income tax treatment is still unsettled in most states. Confirm all figures for the current tax year with your tax professional.