FPI July 2026 - How Trump Accounts Work
- Jul 8
- 3 min read
Blake Smith - July 8, 2026
Hello everyone. Blake Smith at Financial Partners here, excited to bring you this month's video. I'm going to talk about what's been on a lot of folks' minds. I've been getting a lot of questions over the last several months from parents, grandparents, about Trump accounts. So, first and foremost, what is a Trump account? A Trump account is a long-term retirement savings vehicle that comes packed with many rules and restrictions.
Ultimately, it's a federally created savings account for children under the age of 18, and any US child with a social security number can have one. The maximum annual contribution, which is indexed for inflation, currently is $5,000. But since Trump accounts allow for many types of contributions from different sources, that annual limit can be exceeded, and in fact, the annual maximum can be surpassed in the very first year uh for some Trump account owners.
How's that possible? The initial one-time $1,000 federal government contribution for children born between January 1st, 2025 and December 31st, 2028 does not count against that annual maximum. Trump accounts are established by an election on IRS Form 4547, and the primary way to access the form and establish the account is via uh the website www. trumpaccounts.gov. Now, another restriction of these accounts are the investments inside of them. You can only invest in US-based mutual funds, exchange-traded funds, that are very low cost.
You can't just invest in anything you want to in these accounts. There are restrictions there. And these accounts are not a right fit for everyone. The funds are locked until age 18. Once the child does turn age 18, the funds are available, and they're essentially running with the same IRA rules going forward. The funds would be taxed as ordinary income and there very well could be withdrawal penalties if distributed before age 59 and a half.
So, if flexibility or if education planning is the primary goal, there are probably other investment vehicles out there that make more sense. Trust accounts may be a good strategy for your financial plan or they may not. But it isn't interesting to look at the math and we can just use simple math and say that the account is funded at $5,000 at annual maximum up until the age of 17 for the child, add in that $1,000 federal government contribution and we can just use a simple, you know, 8% annual return. I mean, you'd be looking at over $180,000 in that account, you know, once the child turns 18.
After the the lockout period is gone and the child does turn 18, also then general financial and tax planning strategies can apply. Depending on the child's tax bracket, current financial situation, options like Roth conversions uh could be done at age 18, generating potentially decades of tax-free growth. Like many investment vehicles available, you know, trust accounts really just depend on your personal financial plan, which needs to take into consideration your tax situation and your ultimate long-term financial goals and focus.
We're happy to continue to answer any questions around these, help navigate the waters of these new accounts. Again, we've been talking to a lot of parents and grandparents about the tradeoffs of these accounts. So, as always, reach out to our office, ask any questions that you may have, see if these accounts are are right fit for you. There are no doubt still a lot of questions going unanswered and the IRS will likely be bringing new rate regulations and decisions in the years ahead around these accounts.
So, feel free to give us a call if you do have questions, and we look forward to talking to all of you soon. Take care.
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