Trump Accounts: What Every Business-Owner Parent Should Know
Starting in 2025, Trump Accounts give parents a new way to save and invest for a child. Here's a calm walkthrough of the government seed money, employer contributions for staff, and the tax moves that pay off at age 18.
Kwon CPA
What a Trump Account Actually Is
A Trump Account, also called a 530A account, is a new account designed to help parents save and invest for a child's future, with both education and retirement planning in mind.
The eligibility rule is straightforward: any child under 18 with a Social Security Number can have one. Unlike a regular IRA, the child does not need earned income to open or fund the account. In other words, the child does not need to have a job for the family to start saving.
The Seed Money and First Contributions
Children born between 2025 and 2028 receive a one-time $1,000 from the federal government. This is not a bonus that families apply for; it is starting capital set aside for the child.
In addition, families living in areas with a median income under $150,000 may receive an additional $250 from a foundation contribution. Many of our clients are likely to qualify for this amount.
How the account is opened depends on the child's year of birth.
- Child born in 2025: The account is set up on the tax return. If you've already filed, you'll need to file an amendment.
- All other eligible children: The account is set up through an online portal.
- Contributions can begin July 4, 2026. Before then, only the seed money sits in the account.
Even if your return is already filed, an amendment can still open the account. Don't leave the $1,000 seed on the table — flag it with whoever prepares your return.
Who Can Contribute, and How Much
The total annual contribution limit is $5,000. Parents are not the only people who can contribute. Grandparents, relatives, friends, and even an employee's employer may also fund the account.
For business owners, the key point is the employer contribution. A company can contribute up to $2,500 per employee into that employee's child's account each year. That contribution:
- is a tax-deductible business expense for the company, and
- is not included in the employee's taxable wages.
Put simply, if you pay an employee $2,500 as wages, taxes generally apply to both sides. If the business contributes that amount to the employee's child's account instead, the business gets a deduction and the employee receives the benefit tax-free. For a small business trying to retain a valued employee, this can be a meaningful benefit.
Pay a bonus as wages and the tax follows; route it into a child's account and the business deducts it while the employee takes it home tax-free.
To make employer contributions, the company must first set up a Trump Account Contribution Plan (TACP). One caution: the IRS has not yet released specific guidance for closely held corporations. If you run an S-corp and are considering funding your own child's account through the business, do not move too quickly. Speak with us before that guidance is finalized.
What Time Does to the Numbers
The main advantage of this account is time. The account grows from setup until December 31 of the year before the child turns 18.
Consider this scenario: the account starts with the $1,000 seed, receives the maximum $5,000 annual contribution each year, and earns an assumed 7% return. By age 18, the account could reach roughly $179,000.
The longer-term projection is even more significant. If the account is left untouched with no further contributions, it could grow to about $1,600,000 by age 59½.
These figures are illustrative only, and actual returns will depend on market performance. Still, the principle is clear: the earlier and more consistently the account is funded, the more time compounding has to work.
Age 18 and the Tax Moves That Follow
When the child turns 18, two things happen. First, the account automatically converts to a traditional IRA. Second, control of the account shifts entirely to the child.
This is where tax planning becomes important. At conversion, families may consider a Roth conversion strategy. Partial conversions between ages 18 and 21 can be especially useful because the child may be in one of the lowest tax brackets of their lifetime. If the child is a student with little income, the tax cost of conversion may be relatively low.
It is also important to understand the tax treatment. Individual contributions are made with after-tax dollars and can be withdrawn tax-free, but the growth in the account is taxable on withdrawal under standard IRA rules.
Parents should also keep good records. Until age 18, you manage the account and are responsible for tracking its tax basis. Clear records of after-tax contributions will make the tax calculation easier when the child withdraws funds later. If a child passes away before age 18, the account transfers to a designated beneficiary, just like a traditional IRA.
How It Compares to a 529 Plan
If the primary goal is education savings, a 529 plan remains the first choice because qualified education withdrawals are completely tax-free.
- Education withdrawals are fully tax-free
- Optimized for education savings
- No penalty on education withdrawals, but ordinary income tax still applies
- Better suited as a retirement vehicle
The key distinction is this: a Trump Account allows penalty-free education withdrawals, but those withdrawals are still subject to ordinary income tax. For that reason, the account is better viewed as a long-term retirement vehicle than as a primary tuition fund.
In practice, using both may make sense. A 529 plan can cover college costs, while a Trump Account can help establish a long-term retirement balance. In both cases, the strategy is the same: start early and let time work. Even for a busy business owner, this account is worth reviewing carefully.
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