Trump Accounts Explained: $1,000 Free for Your Kids…. But Is There a Catch?

In today’s episode, you’ll learn more about:

• What Trump Accounts are and how they work
• Who qualifies for the $1,000 government contribution (2025–2028 births)
• Contribution rules, including employer and third-party funding
• How withdrawals are taxed (ordinary income vs capital gains)
• Trump Accounts vs 529 plans, Roth IRAs, and custodial brokerage accounts

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

Trump Accounts are getting a lot of attention right now. It’s a new investment account for kids. Some kids will get 1,000 bucks from the government. We’re even starting to see companies and big names like Michael Dell get involved. So naturally, it’s a lot of families asking, “No, should we be using these?” We’ve got you covered today. We’re going to walk through exactly how these accounts work, and more importantly, where they may not be as good as they seem once you understand the tax rules.

Walter Storholt:

It’s time to Retire Smarter. Welcome back, I’m Walter Storholt, as always, joined by Tyler Emrick, certified financial planner, chartered financial analyst, and a wealth advisor at True Wealth Design. And I’m excited for today’s episode because I’m getting $1,000.

Tyler Emrick:

I was going to say, you’re affected.

Walter Storholt:

I’m affected by this. Well, my son, I guess is getting $1,000, not me.

Tyler Emrick:

That’s true.

Walter Storholt:

Yeah, I’ve got a relative newborn who’s going to fall into this Trump Account, seeded account part of this.

Tyler Emrick:

Yes.

Walter Storholt:

But other kids are affected too, even if you haven’t had a kid recently or in the next year or two, they just may not get this 1,000 dollars. We’re going to break all that down. But anyway, you’ve caught my attention, sir, with today’s topic, so I’m interested.

Tyler Emrick:

You got it, yeah. I think really any kid under age of 18, theoretically we got to have a valid Social Security number and certainly only one per child can be open. But yeah, the 1,000 bucks, it would be for any kid born between 2025 and 2028, at least as it currently stands, would get that initial seed money. But shoot, I mean, everybody’s getting in on the action here, right? I mean, I think on the lead in, I mentioned Dell, Michael Dell. $6 billion pledge or some big astronomical number to help fund these things. Nicki Minaj came up in one of the research articles that I see, maybe she had pledged some so it seems like these are getting in quite a bit of press. So it’s like, well, hey, how do these things work? What do we need to be aware of? And yeah, give us a little bit of a breakdown, I think is what’s on the docket today.

Walter Storholt:

Well, there’s a couple of elements in these accounts, right? So there’s the accounts themselves and then there’s, okay, some of you are getting $1,000 starting boost in the accounts, but then after that 1,000, it’s the same as what everybody else has. So I know that separates it out a little bit. And then the funding of the accounts, as you’re mentioning, is something a little bit different too.

Tyler Emrick:

It is.

Walter Storholt:

This is not necessarily going to be from government money. It’s from private donations or at least a chunk of it sounds like.

Tyler Emrick:

Yeah, well, employers.

Walter Storholt:

That’s the other one that’s interesting. Employers can jump in and be involved in this, other family members can fund accounts. I know you’re going to cover all those details, but it’s a lot of layers to analyze whether this is a good thing or a bad thing if you can even pigeonhole it like that.

Tyler Emrick:

Sure. Well, and there’s a little bit of complexity of, well, where that money comes from might have some different tax treatment too, and keeping track of that. And then, well, hey, how does that impact how beneficial these things are compared to some of your other alternatives? Yeah, that’s probably where the meat and potatoes would be for today. But I mean, we hit the general high level of it, right? I mean, I think you can, if you’ve never heard of what Trump Account before, you just think of it as a custodial account owned by a child controlled by the parent until the child reaches 18. So a custodial account owned by the child, controlled by the parent until your child reaches 18. But not even, what is it, July of this year is when the new ones will actually officially get started.

Walter Storholt:

Yeah, these technically don’t exist yet.

Tyler Emrick:

Correct. Now, if you are one of those individuals like Walt, hey, had a baby in 2025, you are going to want to do a few things, right? The first of which is file that Form 4547, which can be done by your tax accountant for 2025 when you file your return, or you can go to that website, let me read it here and make sure I get it right, trumpaccounts.gov is the website you can go to do it for. I think you did it that way right for easy-

Walter Storholt:

Of course it’s Form 4547, I mean.

Tyler Emrick:

I did not put two and two together on that, but yes, as you just said that, I was like, “Okay, yeah, that makes sense.”

The process looks fairly intuitive there on that government website. I think that’s how you had done it right, Walt?

Walter Storholt:

Yeah.

Tyler Emrick:

Pretty easy, quick to go through and do it, right?

Walter Storholt:

Yeah.

Tyler Emrick:

So you’ll go in and say you file that form, and then come July, then you’ll get some communications on, well, hey, where do you want this account to be held? I think there’s been a host of companies saying that you can open up accounts there like the big names, Fidelity, Schwab, so on and so forth. More to come on the actual logistics of, well, hey, where’s the account held? How do I get my 1,000 bucks deposited in and how do we contribute and all that good stuff. But yeah, for those of you that need to get that account opened up for 2025, that’s what you’ll want to have on your docket and want to be doing.

But you hit the nail on the head on, well, how does money get into these things, right? So you can put in up to $5,000 per year. That’s the annual cap that can actually go in there. Now, that can make up a few different places where that money comes from, the first of which can be from your own pocket, right? You make a contribution or a family member makes a contribution to the account for your child, but then there’s this whole other subset of ways money can get in, which is where the Michael Dell thing came into play where they can be pledged certain contribution amounts from philanthropists or potentially your employers.

As we were researching it, Walt, some of the big name employers were saying, hey, they were going to build it into their employee benefits potentially and make some annual contributions on the behalf of employees for their children. Not just children born between 2025 and 2028, but children in general. Remember that rule is just for that $1,000 from the government of free money, that seed money to get them started. So contributions can come from a few places, which is great. Hey, we always like free money, especially if employers are going to get in on the bunch and this becomes a more benefit rich option offered by employers that they compete for. So all good there for sure.

Speaker 3:

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Walter Storholt:

And I know there’s a lot of questions about, okay, so we have this account. Do you want to tackle the taxability question or maybe what investments are then available to us in those accounts, because I mean those are always two big variables.

Tyler Emrick:

Let’s go to the investments, right? That is one, right? Because this isn’t like a traditional savings account. What happens is it’s going to work more like your IRA accounts that you might have that you’ve saved in for a number of years, 401(k)s, things like that. But essentially when you open these accounts, you are going to have investment options that are available to you and their fees of those investments options are going to be capped. So that’s a good thing. Always, we want to keep our fees low, and the investment options that were mentioned are ETFs or exchange traded funds. They work very similar to mutual funds if you’re not familiar with them, but they’re very easy, diversified ways to get broad market exposure and keep your fees down low. No individual stock selections or anything like that. So certainly I think when these accounts came out, they were trying to be very mindful of costs and keeping those down. That’s a good thing.

And certainly as you think about a good diversified portfolio, especially if you’re opening these for a newborn, a long time for compounding growth and all that good stuff to benefit from. So I think that’s a general thesis there as we think about like, “Hey, how are the underlying investments going to work here?” Now you can think of that timeline. I mean, that’s a good little segue here because what happens is like these accounts, they are going to be locked for the first 18 years or until your child reaches 18, essentially.

And then what happens is they transition to an IRA style structure, so you can think of it as just like having a traditional IRA account that you’d put money in for a number of years once your child reaches 18. Even though the control shifts, which is very important, right, becomes the control shifts to your child at 18, that doesn’t mean that there’s like penalty-free access to the account, right? It’s going to be treated like an IRA. So your child would then not have access to that money penalty free until they reach 59 and a half under like a traditional IRA account would be-

Walter Storholt:

So it’s not exactly like a 529 plan where your intention is to be able to maybe use this money at 18 or approximately that age. This is money you’re putting away and saying for 60 plus years.

Tyler Emrick:

Seed for retirement. You got it, absolutely. Things like first time home purchases or college, I mean, that’s a great example you mentioned there. These might not be the best places for you to save for those types of things for your child, so that’s a big key caveat.

And I think the other one would be the tax treatment of these accounts, which I think is probably the most important thing is you’re thinking about like, “Wait, how do I want to use it?” Hey, no-brainer, open an account, get your free 1,000 bucks if you have a kid from 2025 to 2023, that makes a ton of sense. But then the question then, or certainly if you’re going to get free money from Michael Dell or your employer’s going to make contributions, hey, take that free money as you can get it.

But then when you turn and start to think about like, “Well, hey, do I want to use this? Should we be putting in money in this?” I mean, you got 529 accounts, you can put money into custodial accounts.

Walter Storholt:

Yeah, should I give her money I was planning on doing 529 with and-

Tyler Emrick:

You got it.

Walter Storholt:

… do this instead?

Tyler Emrick:

Yep. The tax treatment is where this really comes into play to I think help answer that question because what happens is depending on how money goes into these Trump Accounts will depend on how they’re taxed when they come in. So for example, if you make a contribution to the Trump Account, you do not get a tax deduction for that, right? So what happens is that money gets invested, and then hopefully you have earnings over a long period of time and that growth you do not have to pay taxes on until you pull it out. We call that tax deferred. Think of it as just like an IRA account, right? You’re not paying taxes on your IRA account growth or a little different because IRA account, the contributions traditionally are pre-tax so you pay tax on everything when you come out.

But for these Trump Accounts, we want to really be specific in the note. If it comes from you, a contribution, the growth portion is not taxable until you pull it out. Anything that you put into the Trump Account though, that’s not going to be taxable to you when you pull it out, so there is a little bit of added complexity here of record keeping that on your tax return, Walt, as you think about how contributions are going in, because down the road, we want to be able to make sure that we are delineating what was a contribution from you or the family and what is actually growth inside the account because that’ll be important when you go and pull the money out of these accounts down the road.

Walter Storholt:

It sounds a little disadvantaged to me though. Am I off track in that I don’t get, a traditional IRA, I’m getting a tax benefit now.

Tyler Emrick:

Benefit.

Walter Storholt:

And then I pay the tax later. This is sort of paying the tax now and paying the tax later?

Tyler Emrick:

Potentially, right? I mean, you’re not getting that tax deduction for it. The big benefit is the deferral of those taxes, so your money has longer time to compound and grow.

Walter Storholt:

But you’re just missing that front end piece of the trade-off, right?

Tyler Emrick:

Correct. And you’re going to get hit on the backside.

Walter Storholt:

Right.

Tyler Emrick:

And to your point, it’s taxes ordinary income, which is extremely important, which we’ll touch on here in a second, especially as you look at some of your alternatives. So that’s your contributions to the plans. If you get something from your employer or a pledge from someone else based off where you live or whatever the case is, that money, when it comes out, would all be taxable to you as ordinary income as well, right? The only thing that-

Walter Storholt:

Including the contribution.

Tyler Emrick:

Including the contribution to it.

Walter Storholt:

And those people aren’t getting a tax break to put those things in?

Tyler Emrick:

Well, there’s certainly going to be some benefits, I think, for them to put money in, whether it be the notoriety, the press, certainly some tax advantages as you think about where that money comes from potentially in things, but your specific case-

Walter Storholt:

Pretax.

Tyler Emrick:

It’s all pretax, yeah.

Walter Storholt:

Grandma wants to put some money in, she’s just like us, she’s not getting.

Tyler Emrick:

A deduction for it.

Walter Storholt:

A deduction or anything.

Tyler Emrick:

Or anything like that, right? And then your child’s big benefit is tax deferred growth on that money, so it can grow without having to pay taxes on it until they pull it out.

Walter Storholt:

Okay.

Tyler Emrick:

But if you compare that, Walt, to some of your other alternatives, right? I mean, shoot, you can put money into a 529, and most states will give you a tax deduction for that. That money would grow. And as long as it’s being used for qualified education expenses, you could pull it out and not owe any taxes on it, right? So that is a big delineation here as you compare, “Well, I could put money in a 529, what are some of my benefits? Hey, I’ll get a little bit of a tax deduction potentially, as long as I do it the right way or depending on what state I live in.”

And then two, all that money when you go to pull it out would not be taxable to you as long as it’s used for qualified education expenses. The Trump Accounts can be used for anything now, right, down the road. There is that caveat where this money does not need to be delineated specifically for education accounts or education or whatnot. That’s as you compare it to a 529, some of the things to be mindful of.

The other big competitor I think for this account would be just a traditional custodial account, right? This would be an investment account that you would go and open up at a brokerage shop, Fidelity, a Schwab with your advisor, whatever the case may be. You would put money into it, and it would be set up very similar to the Trump Account where you would control the account as the parent, but it would be for the benefit of your child.

And the big difference here is, one, those custodial accounts, you’re not going to get any employer that puts money into that for you, right? So that free money aspect might not be there, but that money is treated like any other taxable brokerage account, which means that that growth inside of there, well, as long as you hold those investments for over a year, you’re going to get preferential tax treatment on that growth, long-term capital gains. For your child, this may be zero, this may be 15%. You compare that to what their ordinary income rate might be, it might be half or substantially less than the taxes that you’re going to pay on the Trump Account when you pull it out. This is where that kind of benefit, tax treatment, family situation might come into play as you’re thinking about, well, how aggressive do I want to get using these Trump Accounts?

Hey, we have this big tax bill potentially down the road for my child. Well, if I use a custodial account, what does that tax bill look like for them as they progress through life and all that good stuff? And what’s the difference between ordinary income tax and long-term capital gains rate for your child or even for you as you’re using these accounts and your child’s under 18? There’s certainly going to be some competitiveness on, well, how much do you want to be putting into these accounts? Because you have some wonderful alternatives in the form of a 529 account, in the form of these custodial accounts, the Trump Account has its place, how do you want to use it in your family structure?

And over here, I mean, another option that we haven’t even mentioned would be like a Roth account, right? I mean, doing a Roth account for your child. Of course, the big caveat there, Walt, is your child would have to have some type of earned income working, W-2, 1099 to be able to make contributions there. So there is that hurdle to get over, but there’s a host of accounts that you can use, start thinking about using for your child. The Trump Account could be a good one, but just make sure you know some of these ramifications and how you want to use it in your family household, I think is going to be very important.

Walter Storholt:

Yeah. A lot of nuances to try and figure out, man.

Tyler Emrick:

Oh, yeah.

Walter Storholt:

I thought it was hard enough just trying to figure out my own tax situation and all of my levers and flexibility. And now you start looking at 529 plans and the Trump plan and we just-

Tyler Emrick:

Custodial accounts, Roths-

Walter Storholt:

We just opened up a custodial brokerage account for the little guy.

Tyler Emrick:

It’s awesome. They’re wonderful.

Walter Storholt:

Another story for another day, but keeping alive a long family tradition of teaching kids about money through fund stocks and things like that.

Tyler Emrick:

That’s good.

Walter Storholt:

Man, but it’s a lot to keep up with. I will definitely-

Tyler Emrick:

It is, but don’t give up your free money, Walt, hey, if you get that 1,000 bucks, open the account, utilize it.

Walter Storholt:

For sure.

Tyler Emrick:

Certainly talk to your employer, “Hey, are you guys going to offer any benefits tied to these accounts? I have children that we might be able to be applicable or apply for these,” so you’ll be mindful of that and make sure you get those whether you plan on using this or not.

Walter Storholt:

You’ll never get a better return then.

Tyler Emrick:

And free money.

Walter Storholt:

Here’s $1,000.

Tyler Emrick:

Yeah. You got it.

Walter Storholt:

Awesome. Excellent. Well, thank you for that breakdown, Tyler. I know that if somebody’s got maybe some more specific questions about this, you could certainly dive in a little bit deeper and how somebody’s specific tax situation might benefit from these Trump Accounts or a reason maybe to stay away from further investments in them. All of that certainly can happen in a review of your situation.

If you’d like to set up a time to chat with Tyler and the team at True Wealth Design, all you have to do is click the link in the description of today’s show, schedule that time to meet at your convenience and you can have a discovery call, see if you’re a good fit to work with one another in about 20 minutes. It’s easy to do that. Again, click the link in the description, or go to truewealthdesign.com and look for the appropriate buttons there.

Great stuff today, Tyler. Thank you so much for the help. We’ll talk soon.

Tyler Emrick:

Yeah, we’ll see you on the next one.

Walter Storholt:

Yeah. In the meantime, folks, if you’re enjoying the content that you get here on the channel, whether you’re watching on YouTube or listening on your favorite apps, please give us a thumbs up if you’re on YouTube and subscribe so you don’t miss future episodes, no matter what app you’re using to check out the program. It helps us and helps other people find out about the channel and the videos that we produce. So thanks for joining us and we’ll see you again next time on Retire Smarter.

Speaker 4:

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