Experts caution parents on realistic expectations for Trump Accounts
Financial planners say the new child-focused tax-advantaged accounts can grow substantially with early contributions, but outcomes depend on market returns, tax treatment and the child’s future use of the funds.
The Trump Account, a tax-advantaged investment vehicle for children launched under the 2022 tax law, allows a $1,000 government seed deposit and up to $5,000 of after-tax contributions per year until the child turns 18. Financial planners estimate that, assuming a 7% long-term annual return, a fully funded account could reach about $185,000 by age 18 and exceed $1 million by age 45. With higher return assumptions, the balance could grow to $1.4 million at 45 and $4.5 million by age 60, based on roughly $200,000 of contributions.
“The real engine isn’t the deposits—it’s time,” said certified financial planner Matthew Chancey.
“Many people hear ‘tax-deferred’ and mistake that for ‘tax-free,’” warned registered investment advisor Pam Krueger.
“Education on the money and what it stands for… is just as important as the compounding itself,” noted advisor Mitch Hamer.
The projections rely on historical S&P 500 returns of about 10% and do not guarantee future performance. Morningstar data suggest that average U.S. market returns could be closer to 6.3% over the next decade, which would materially affect outcomes. Withdrawals are taxed as ordinary income, and early distributions before age 59½ may incur a 10% penalty unless an exception applies. At age 18, control of the account passes to the child, raising the risk that funds could be spent during financial hardships.
Planners recommend prioritizing an employer-matched 401(k) before opening a Trump Account, followed by a 529 plan for college savings if that goal is likely. Some employers, including technology firms, have pledged to contribute up to $2,500 annually toward employees’ children’s accounts. Experts suggest converting the Trump Account to a Roth IRA in early adulthood when the beneficiary’s income and tax rate are low, to capture tax-free growth.
Overall, advisors stress that the account is a supplemental tool rather than a standalone retirement or education strategy, and its success hinges on long-term, uninterrupted compounding and disciplined use by the future account holder.