At HomeWork Solutions, we support families and professionals on both sides of the household employment relationship — from parents hiring nannies to nannies, caregivers, and other household employees who are parents themselves. Whether you're managing payroll legally or planning for your child’s future, financial responsibility is a shared value. With the introduction of the new Trump Account, many are wondering how it stacks up against more familiar savings tools like 529 plans or custodial Roth IRAs.
If you're already thinking about taxes and financial planning (and if you're working with us, you probably are), this guide is for you. Let’s break down what a Trump Account is, how it works, and how it stacks up against other savings and investment options for children.
What Is a Trump Account?
The Trump Account is part of a pilot program created under the “One Big Beautiful Bill Act.” It’s a government-backed investment vehicle aimed at giving kids a financial head start.
Key Features:
- Eligibility: Children born between January 1, 2025, and December 31, 2028, with a valid Social Security number.
- Initial Funding: The government contributes $1,000 at birth.
- Investments: Automatically invested in a stock index fund.
- Annual Contributions:
- Up to $5,000/year from parents or others.
- Up to $2,500/year from employers.
- Withdrawals: No access until age 18. Early withdrawals (before age 59½) are subject to ordinary income tax plus a 10% penalty.
It’s a long-term investment tool designed to build wealth over time, not a short-term savings account.
Comparing Trump Accounts to Traditional Savings Tools
Here’s how Trump Accounts compare with the most common and trusted savings options available today:
|
Account Type |
Ideal For |
Contribution Limits (2025) |
Withdrawal Rules |
Tax Treatment |
Who Controls It |
|
Trump Account |
General-purpose, long-term savings |
$5,000/yr (plus $2,500 from employers) |
Not accessible until age 18; early penalty |
Tax-deferred growth; taxed on withdrawal |
Child takes control at 18 |
|
Custodial Brokerage |
Flexible savings & investment |
No formal limit, but gift tax may apply |
Accessible at 18 or 21 (varies by state) |
Taxes due annually on earnings |
Child at age of majority |
|
Custodial Roth IRA |
Retirement savings for working teens |
$7,000 (must have earned income) |
Contributions anytime; growth after age 59½ |
Tax-free growth and withdrawals (some limits) |
Child at 18 or 21 |
|
529 Plan |
Education-specific savings |
Varies by state (often $300,000+) |
Tax-free if used for qualified education |
Tax-free growth and qualified withdrawals |
Owner (usually parent) |
|
ABLE Account |
Savings for children with disabilities |
$19,000 (+$15,060 for eligible workers) |
Qualified disability expenses only |
Tax-free growth for eligible expenses |
Account owner (person with disability) |
|
Special Needs Trust |
Complex support for disabilities |
No legal cap, but legal fees apply |
Per trust guidelines |
Varies depending on trust structure |
Trustee-managed |
When Does a Trump Account Make Sense?
You may consider a Trump Account if:
- Your child qualifies by birth year (2025–2028).
- You’re looking for a long-term, set-it-and-forget-it investment with a head start.
- You're not focused solely on education savings.
- You like the idea of stacking savings with potential employer contributions.
However, you might want to consider another option if:
- You need more flexibility on how and when the money is used.
- You want to retain control of the account beyond age 18.
- You’re focused on saving for college expenses — a 529 plan likely offers better tax advantages.
Real-Life Use Case
Many of our clients are proactive planners. If you’re already managing taxes for a nanny or caregiver through HomeWork Solutions, you understand the value of getting things right early on. A Trump Account could be one more way to formalize that mindset — and leverage a government-provided starting balance to grow your child’s financial future.
That said, it's not a one-size-fits-all solution. For families prioritizing college costs, a 529 plan remains a powerful, flexible, and tax-efficient choice. And for teens with after-school jobs, a custodial Roth IRA is an unbeatable head start on retirement.
Quick Comparison: Trump vs. 529 Plan
|
Trump Account |
529 Plan |
|
|
Initial Government Deposit |
$1,000 |
None |
|
Use of Funds |
Any purpose after age 18 |
Qualified education only |
|
Tax-Free Growth |
Tax-deferred only |
Yes (for education expenses) |
|
Control |
Transfers to child at 18 |
Remains with account owner (parent) |
|
Withdrawal Penalty |
10% penalty before 59½ |
Penalty only for non-qualified use |
Final Thoughts from HomeWork Solutions
At HomeWork Solutions, we know families are at their best when things are organized, compliant, and stress-free. While we don’t give investment advice, we do support families in making smart financial decisions — whether that means legal pay for household employees, or understanding how to use tools like Trump Accounts or 529s to give your kids a strong start.
If you’re hiring a household employee and want to get payroll right — taxes, benefits, and all — we’ve been helping families do just that since 1993.
Talk to a real person at HomeWork Solutions (it’s complimentary!)