How 'Trump accounts' stack up against traditional savings vehicles for your kids’ futures

When Michael and Susan Dell pledged $6.25 billion last week to jump-start investment accounts for 25 million American children, it put one of the newest and most hyped savings vehicles for kids front and center: Trump accounts.

The accounts, created through President Donald Trump’s “One Big Beautiful Bill” signed into law in July, promise to give every American baby born between 2025 and 2028 a $1,000 head start from the U.S. Treasury. With the Dell donation adding $250 more for eligible children under 10, it sounds like free money for families.

But financial advisors say parents shouldn't rush to abandon tried-and-true savings strategies. Trump accounts may fill a specific niche, but they may not be the right fit for every family's future goals.

"I think it is super goal-specific based on what you're looking to accomplish with your savings," said Travis Veenhuis, a certified financial planner with SGH Wealth Management in Detroit.

William Connor, partner and wealth advisor with Sax Wealth Advisors in New York City, agrees — with a caveat.

"It's still a bit unclear exactly what these Trump accounts are going to be," Connor said. "Broadly speaking, I love the idea; I think there's not enough savings that happens."

The real question: Where does your money work hardest?

How Trump accounts work

Trump accounts function as tax-deferred savings accounts for children under 18. Parents can contribute up to $5,000 annually — after tax, meaning no deduction — and investments grow tax-deferred until the child turns 18.

That's when things get interesting. At 18, the account converts to a traditional IRA. Kids can then use the money for education, a first home, starting a business or retirement.

Connor's understanding is that withdrawals will be taxed at capital gains rates — which for most young adults should be zero, or perhaps 15% if they're earning some income. "Regardless, a lower rate than normal income," he said.

The accounts are limited to low-cost index fund investments tracking the S&P 500 or similar U.S. stock indexes.

The math looks compelling on paper. A family contributing the maximum $5,000 annually with a 6% growth rate could see the account reach roughly $191,000 by the time their child hits 18, according to the Schwab Center for Financial Research.

If the account is left untouched without additional contributions, it could balloon to $2.2 million in assets by the time the beneficiary reaches age 60.

Add in the initial $1,000 government seed money — or $250 for eligible families receiving the Dell gift — and the compound growth potential is substantial.

Connor sees value beyond just the dollars. 

“When there's a newborn and you've got your entire life ahead of you, of course, in all those years to compound, putting a couple bucks in today over 18 years makes a big, big difference," he said.

Financial reality check

In 2024, the average 529 account balance grew by just over $212 per month, and only 35% of families use dedicated college savings at all, according to the Education Data Initiative.

With elevated inflation, soaring housing and daycare costs, a softer job market and economic headwinds, families are taking on more debt than ever. In the third quarter of 2025, total U.S. household debt grew by $197 billion to a new record of $18.59 trillion, according to the New York Fed.

Combined, these factors might make it harder for families to find enough cash in their monthly budgets to stash away for their children's futures. Plus, Trump accounts come with notable restrictions that might not fit every family’s needs.

"While the child is still younger than age 18, there would not be any withdrawals allowed from a Trump account," Veenhuis explained. That's a potential dealbreaker for parents who might need flexibility before their child becomes an adult.

The accounts also lack some tax advantages that competing vehicles offer. Contributions aren't tax-deductible, and investment earnings accumulate tax-deferred — not tax-free.

When kids eventually withdraw the money, they'll face potential tax implications, including a 10% tax withdrawal penalty before age 59 ½ unless a specific exemption applies, according to the White House.

How Trump accounts stack up against the competition

529 plans

Best for: Families saving specifically for education expenses from pre-kindergarten through graduate school.

How they work: State-sponsored investment accounts where contributions may be tax-deductible at the state level, and withdrawals for qualified education expenses are tax-free. Your child is a beneficiary of the account, but you retain control over it regardless of their age.

Annual contribution limits: Varies by state, but typically $300,000-$500,000 lifetime limits.

Key advantages:

• Tax-free growth and withdrawals for education.
• Can change beneficiaries to another child if the original beneficiary decides not to go to college or trade school.
• State tax deductions (varies by state — New York offers $10,000 annually, for example).

The catch: Non-education withdrawals face taxes and a 10% penalty on earnings. Some states don't allow tax-free withdrawals for K-12 expenses.

Expert take: "If these funds are intended exclusively for some sort of education savings, I do believe a 529 is still going to remain the best option for those folks, simply because a lot of them will still offer some level of state tax deduction for the contributions," Veenhuis said.

Custodial Roth IRAs

Best for: Setting kids up for long-term retirement savings when they have earned income.

How they work: After-tax contributions grow completely tax-free. Unlike Trump accounts, qualified withdrawals in retirement are also tax-free. You (the parent) manages the account until your child reaches the age of majority (18 or 21, depending on your state).

Annual contribution limits: $7,000 in 2025, but cannot exceed the child's earned income.

Key advantages:

• Tax-free growth for life.
• Can withdraw contributions anytime without penalty.
• Up to $10,000 can be used penalty-free for first-time home purchase.

The catch: Kids must have earned income equal to or greater than the contribution amount.

"If your goal is exclusively to set your child up for retirement, I still think that a custodial Roth would likely be more advantageous than a Trump account, simply because of the tax-free growth that can accumulate over that child's lifetime," Veenhuis said.

However, he noted the earned income requirement trips up many families. In other words, your 3-year-old can't contribute unless they're modeling or acting. Even teenagers need legitimate W-2 income.

UTMA/UGMA accounts

Best for: General savings without specific goals, or money intended for non-education expenses like a first car or home down payment. Uniform Transfers to Minors Act (UTMA) accounts are more flexible and can transfer any type of asset while Uniform Gifts to Minors Act (UGMA) accounts are limited strictly to financial assets like stocks, bonds and cash.

How they work: Custodial brokerage accounts where contributions go in after-tax. No restrictions on how the money is used once the child reaches the age of majority (either 18 or 21, depending on the state).

Annual contribution limits: No federal limits, though IRS gift tax rules apply (currently $19,000 per individual in 2025).

Key advantages:

• Complete flexibility in how funds are used.
• No earned income requirements.
• Can invest in virtually anything.

The catch: When kids reach the age of majority, the money becomes legally theirs to do with as they please with no parental oversight or say so.

"That's something that I think is important to consider,” Veenhuis said. “If I'm going to be saving thousands of dollars a year into this account, am I going to be comfortable with my child potentially taking ownership of an account with potentially tens to hundreds of thousands of dollars in it, pretty much at their disposal?" 

This control issue makes some parents nervous. If you don't trust your 18-year-old with a six-figure windfall, UTMAs might not be the right solution.

But Connor uses this strategy alongside a 529 for his son, specifically for flexibility.

"The reason I did that was thinking about private high school," he said. A UTMA can fund things a 529 cannot — like summer camp, enrichment programs or trade school expenses.

"What if it's something like a summer camp, or there's an enrichment program over the summer at NASA, it costs you money. You can't use a 529 for that," Connor said. "That could be the kind of thing that would be very beneficial for your child."

High-yield savings accounts (HYSAs)

Best for: Goals less than 12 months away or extremely risk-averse savers.

How they work: Traditional savings vehicles offering guaranteed returns through interest, currently around 4%-5% for high-yield savings accounts, or HYSAs.

Key advantages:

• FDIC-insured safety.
• Liquidity to use quickly.
• No market risk.

The catch: HYSA returns lag behind long-term stock market averages of 10%, according to Experian.

"If we're saving for a goal and if that goal is less than 12 months away, that's where I typically would recommend, let's keep those funds liquid and safe so that you can tap into them when you need them," Veenhuis said.

Where Trump accounts fit in

So where do Trump accounts actually make sense?

According to Veenhuis, they occupy a middle ground between UTMAs and Roth IRAs.

"I think it could be a valid replacement for something like a UTMA or a UGMA, where there's no specific goals for higher education expenses,” he said. “It's not exclusively for retirement, but maybe you're just looking for a general investment account to set your child up with for something like a down payment on a house or a car purchase at some point in their young adult life."

The key advantage Trump accounts have over custodial Roth IRAs: no earned income requirement, Veenhuis noted.

Connor sees Trump accounts as another tool in the financial planning toolbox — but emphasizes their educational value in promoting financial literacy may be just as important as the money saved.

"These are great things to set up for children and help them learn and understand what it means, what's compound interest," Connor said. "That is something that most people don't really understand very well, and it's obviously such a big deal in the financial markets."

The more exposure children have to investing concepts early, Connor said, "the earlier you start to understand these things doesn't guarantee success, but certainly increases the likelihood."