A new type of savings account for children officially opened for contributions on July 4, 2026, and given the questions we have been getting from clients with young kids, it is worth a proper breakdown of what these accounts are, how they actually work, and where the California-specific complications come in.

What Is a Trump Account?

A Trump Account, also referred to as 530A Accounts, is a custodial-style account created under the One Big Beautiful Bill Act signed in 2025. It is structured as a type of traditional IRA, owned by the child but managed by an adult until age 18.

A parent, legal guardian, adult sibling, or grandparent can open the account on a child’s behalf, and total contributions from all sources combined are subject to an annual limit of $5,000, indexed for inflation beginning in 2028.

Contributions are not tax deductible, but funds grow on a tax-deferred basis federally until withdrawal. Investments are limited to low-cost mutual funds or ETFs tracking the S&P 500 or a broad U.S. equity index, with an expense cap of 0.10%, and no withdrawals can be made before January 1 of the year the child turns 18, after which traditional IRA rules generally apply. Since the contributions are not tax deductible, they are counted as basis which needs to be tracked, similarly to how basis in a Traditional IRA is tracked when making a non-deductible IRA contribution. This is important because when the child turns 18 the account turns into a Traditional IRA and we can convert some or all of the account to a Roth IRA for the child. Basis is not taxable, but any growth will be taxed so having accurate records will be important.

How Much Does the Government Contribute to a Trump Account?

 For U.S. citizens born between January 1, 2025 and December 31, 2028, the federal government will deposit a one-time $1,000 seed contribution into the account, which does not count toward the $5,000 annual limit. To receive it, a parent or guardian needs to opt in by filing IRS Form 4547, with an online option through TrumpAccounts.gov available in mid-2026.

Employers may also contribute up to $2,500 annually per employee toward their child’s account, which is excluded from the employee’s federal gross income but does count toward the $5,000 annual limit. That $2,500 cap applies per employee regardless of how many children they have. A number of Bay Area companies including Nvidia, Visa, and Uber have already announced contribution programs for their employees, so it is worth checking with your HR department if you have a child who qualifies.

Is the Account Tax-Deferred for California Residents?

This is the part that matters most for California residents. The state’s Franchise Tax Board has determined that Trump Accounts will not receive tax-deferred treatment at the state level, which introduces complications worth understanding clearly before opening one:

• Investment earnings inside the account will be taxable in California each year during the growth period, unlike the federal treatment where growth is tax-deferred until withdrawal
• Because the account belongs to the child rather than the parent, California’s kiddie tax rules apply, meaning a portion of investment income is tax-free, an additional amount is taxed at the child’s rate, and anything above the threshold is taxed at the parent’s marginal rate
• Employer contributions to a child’s Trump Account are treated as taxable income to the employee for California purposes, even though the parent is not the one receiving the benefit
• Families will need to maintain two separate sets of tax records for the same account, one for federal and one for California

California conformity legislation could change this picture, but nothing has been signed into law as of this writing and the timeline remains uncertain.

How Does a Trump Account Compare to a 529 Plan or a Custodial UTMA Account?

The two vehicles are built for different jobs and work well alongside each other. A 529 is purpose-built for education, offers a broader range of investment options, and qualified education withdrawals are tax-free at both the federal and California state level.

A Trump Account is closer to a starter retirement account, with the funds becoming subject to standard IRA rules once the child turns 18 and available for a wider range of purposes over time, whether that is a first home, a business, or long-term retirement savings. For families already using 529 plans, a Trump Account layers in a separate long-term compounding vehicle without displacing what is already in place.

From a tax perspective, a custodial account under the Uniform Transfers to Minors Act (UTMA) slightly wins out for having a higher after-tax value at age 17 or age 60 if we start at birth. More importantly, custodial accounts have greater flexibility to use the money as the parent or guardian sees fit as long as it’s for the child’s benefit.

Is It Worth Opening a Trump Account for My Children?

For most families with eligible children, capturing the $1,000 government seed is a straightforward call. The process is low effort, the seed sits outside the annual contribution limit, and the compounding runway ahead is real. To frame it simply: a $1,000 seed growing at a modest 7% annually reaches roughly $3,400 by the time the child turns 18, without a single additional dollar added.

For families in a position to contribute the full $5,000 annually, the long-term numbers become considerably more meaningful, potentially growing to well over $150,000 by age 18 at that same assumption, giving the child a meaningful financial foundation before they have taken a single step into the workforce.

The California non-conformity adds complexity and some additional tax drag at the state level, but for families with the capacity to contribute regularly, the federal tax-deferred compounding and the long investment horizon still make a strong case for participating. If you want to think through where an account may fit for your family, we are happy to dig into the specifics.

Tony Blagrove, CFA, CFP
Founder, CEO
Direct: (650) 397.2395
Tony.Blagrove@TravekaWealth.com

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