Trump Accounts – What Are They?

Starting July 5^th, 2026, any American child born between 2025 and 2028 qualifies for a free $1,000 from the US government to kick start their financial future. This is the base of the new Trump accounts. What you may not know is that ANY child under the age of 18 can also open a Trump account with funds contributed by parents, grandparents and others. The free money for those new children makes this a no-brainer for parents, but the question is whether they should they be used for older children. And should parents continue to fund the Trump accounts annually? Are there better alternatives? 

At a high level, Trump Accounts were established by the One Big Beautiful Bill[1] as a way for children to begin building wealth. The best way to think about a Trump Account is as an Individual Retirement Accounts (IRA) that parents can open for their children to secure their financial future. They’re “baby bonds,” accounts that are funded early in a child’s life with the goal of compounding over decades, not years, to support financial security and help build generational wealth.

But is this what families want and need? Most savings for children are focused on education, and these accounts can be used for that purpose, but that is not the main goal. Although the accounts are intended to be easy to open (you can fill out IRS Form 4547 to create one), there are still significant unknowns. Currently, Trump Accounts appear to be limited in scope, with only one custodian and one brokerage involved. 

Like all tax-advantaged accounts, there are limits and provisions that must be followed. First, there is an annual limit of $5,000 that can be contributed[2].That can come from anyone. There’s also a provision that allows employers to contribute up to $2,500 of the $5,000 annual limit in a child’s Trump Account annually (so check those employer benefits). Contributions may also be given philanthropically, much like Michael and Susan Dell who are giving $250 for the first 25 million children under the age of 10 that do not qualify for the $1,000 from the federal government.

Investment options for Trump Accounts are limited. Funds must be invested in low-cost mutual funds or exchange-traded funds (ETFs) that are invested in primarily U.S. stock indices such as the S&P 500[3].  While this may keep things simple in investment selection, it might not give you the most diverse options that you may be looking for. 

From a tax perspective, the treatment is mixed. Contributions will generally be made with after-tax dollars, while contributions from your employer, a charity, or the government are made with pre-tax dollars. Withdrawals depend on what part of the account is being withdrawn. Withdrawing the after-tax amounts will be tax free, while any pre-tax amounts will be taxed at the child’s income tax rate. Much like the growth of a Traditional IRA, the growth is tax-deferred, being taxed as income when withdrawn.

Looking ahead, these accounts are clearly designed with retirement in mind. Once the child turns 18, they can fully access their Trump Account. At that time, it will be considered like a Traditional IRA. Meaning that there’s a withdrawal penalty of 10% if taken out before the age of 59 ½ and would be taxed as ordinary income rates. While your child’s retirement allows for many years of compounding, it limits the flexibility and practicality for more immediate financial goals. 

As with a Traditional IRA, there are exceptions to the 10% withdrawal penalty such as with purchasing a first home ($10,000 limit), educational expenses (tuition and fees, not room and board), or the birth of a child ($5,000 limit per child), but the withdrawal amount will still be taxed as income.

As a result, the real-world use case for Trump Accounts is likely smaller than it initially seems. For many families, priorities such as emergency savings, retirement planning for parents, and education funding will be the priority. In that context, placing funds to a long-term, relatively inflexible account would likely not be the most efficient choice. While educational expenses can be used from the Trump Accounts once they change to a Traditional IRA at 18 years old, the 529 plan is more tax friendly with tax-free earnings for qualified educational expenses and the ability to be used for room and board.

For those new babies in the family, you certainly want to take advantage of the initial $1,000 government contribution, but they are probably not the best option for older children or for continuing contributions. In fact, if the overall goal is to cover educational expenses, we prefer the state-sponsored 529 plans.  

Ultimately, Trump Accounts are an interesting addition to the financial field, but as they currently stand, are unlikely to be the first solution for most families. They work best as a supplemental tool, especially when taking advantage of initial funding opportunities, rather than a replacement for more established and flexible strategies.

Savings Plan for Children

Attribute	Trump Accounts	529 Plan	UGMA/UTMA
Tax Treatment	Tax-Deferred Growth	Tax-Free Growth; Tax-Free Withdrawals for Qualified Education Costs	Taxable
Non-Qualified Withdrawal	Taxed at Ordinary Income Rate and 10% Early Withdrawal Penalty	Taxed at Ordinary Income Rate and 10% Early Withdrawal Penalty	Capital gains tax
Investment Options	Low-cost US Equity Index Funds/ETFs	Plan selected mutual funds and index funds	Any investment
Qualified Uses	Retirement; Exceptions for higher education, first home	Higher Education, K-12 Tuition	No restrictions
Account Owner	Owned by Child	Owned by Account Owner	Child takes full control at age 18-21
Best Used For	Long-term retirement wealth building with possible Roth conversion	Tax-Free growth for college and education costs	Maximum Flexibility

 

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[1] https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

[2] https://trumpaccounts.gov/

[3] https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

Driving Economic Development the Tate Reeves Way

There are differing schools of thought on how a State Government can best to drive economic development. One way is to put together incentive packages to attract specific businesses. These make great headlines and fill everyone with excitement over the future. It is fun to add incremental revenue to GDP projections and make graphs point more skyward than they did before! This requires the government to select projects to invest in and offer enough to industries to come make an investment. The downsides have been apparent through the years as companies structure themselves to take advantage of the incentives without committing to permanent presence and investment. Secondary and tertiary benefits do not always appear as advertised. Lieutenant Governor Reeves admitted that this was a common "done" approach around the country, but was not the ideal approach. It appears that for the country, this is partly a zero sum game as states compete against each other for the same companies.

Our Lieutenant Governor Tate Reeves belongs to a different school of thought on economic development. In his words:

Our number one priority is job creation, bringing better and higher paying jobs to our state. But I also  have a political philosophy which says Government does not create jobs. Government's role is to create an environment which encourages those of you in the private sector to invest capital and create jobs.

Mr Reeves believes that a fiscally conservative government is the first step to increasing economic growth in our state. The idea is that a fiscally irresponsible government now means a higher taxes in the future to pay for current mistakes. This is fairly uncontroversial, but of course, the implementation is where philosophies can differ again.


The second thing that he addressed was having a tax code that is fair, flat and encourages economic development, not discourage. he spoke about eliminating taxes like the inventory taxes and corporate franchise tax. He believes that this will reduce costs to business owners thereby making Mississippi a more attractive environment for businesses and making our existing business more competitive in the region.

He did note that Mississippi will eliminate the lowest tax bracket, effectively saving all Mississippi taxpayers $150 if they had more than $5,000 in income.


Thirdly, we must improve the educational attainment level of citizens of the state of Mississippi. Whatever your political beliefs, you must agree with this point. While there are many approaches to HOW to improve attainment, the great thing is that education is a fairly rigorously measured thing anywhere, so it should not be difficult to tell if we are making progress or not. Here  Lieutenant Governor Reeves and I agree fairly well at the top level. He repeated that one of the core functions of government is to provide public infrastructure, and I believe that education is one of the most important public infrastructures that a government can help provide.

There are a few methods that the state is currently using to improve education in our state. He spoke most proudly about the requirement for students to be able to read on a 3rd grade reading level before passing third grade. The importance of this should not be understated. Third grade was selected as one should be functionally literate for the classes beyond that grade. If a student cannot read at a third grade level, they will struggle in all other classes beyond that point. This was not an unfunded mandate, he pointed out, as the state spent $50 Million dollars on reading coaches and other resources for teachers and students alike. To back this up he also spoke of the Early Learning Collaborative programs that the state provided $9 Million of matching funds for local early learning solutions.

Without citing how many students were able to read on a third grade level before the act, he said that 95% of Mississippi students were passed this new level in the second year that the requirement was in place. It is impressive what the state can accomplish in education when they dedicate the resources to a specific goal.

He also mentioned school choice and the introduction of charter schools, but again, it is too soon to have enough data to talk about.

In his tenure as Lieutenant Governor the state has eliminated 13 school districts through consolidation. In one extreme case, a school district with only 120 students had a superintendent that was paid $128,000. With consolidating school districts, schools get access to a bigger pool of resources and hopefully can reduce administrative costs overall. While consolidation clearly has limits as the public school board movies further from the community, there may be some benefits. It is too soon, he said, to have data here. Again, there is clear potential for growth in achievement here, but it depends on what actually gets done in the classroom.

One important theme with improving results while not spending more is spending resources in a more creative way. One example is career track education. More career track education has helped improve graduation rates from 72% to 80%.


Overall it was fairly positive being able to listen to the Lieutenant Governor speak. While he did not really reveal anything groundbreaking, he was very clear and positive on progress made and being made. Reeves has had 13 years in public service since first becoming Treasurer and there is always speculation that he is aiming higher. To that - a couple of people did keep calling him "Governor Reeves" an amusing slip of the tongue that may presage more.

Check out the full audio of his statement on our Soundcloud below!