by Nate Putnam, CFP®
Senior Vice President
Portfolio and Wealth Management
A question we commonly hear from our clients is, how can I best save money for my child or grandchild’s future? Starting in July, families have a new option to consider: 530A accounts, also called Trump accounts under the law.
What Are Section 530A Accounts?
530A accounts are a new type of tax-advantaged savings vehicle designed to give children a head start on building long-term wealth. Created under Section 530A of the tax code, they function somewhat like a starter retirement account: money goes in during childhood, grows tax-deferred, then becomes accessible in adulthood under rules similar to a traditional IRA. Accounts can be opened and funded starting July 4, 2026, with only one account allowed per child.
It’s important to note that these new accounts are not a replacement for existing education or wealth transfer strategies. Instead, they may serve as a supplemental tool for families who want to help a child build long-term savings while maintaining flexibility for future goals.
How They Work
The account has two distinct phases.
During the initial phase, from the child’s birth through the year before the child turns 18, contributions can be made to the account but withdrawals are generally not allowed. Money can be invested in these accounts through certain low-cost U.S. index based mutual funds and ETFs.
The second phase begins the year the child turns 18. At that point, the account is generally treated as a traditional IRA, subject to many of the same rules. Distributions may be taxable as ordinary income, and withdrawals before age 59½ carry an early withdrawal penalty, though exceptions exist for education expenses, first-time home purchases and other qualifying events.
Who Can Contribute and How Much
Several types of contributions are permitted during the initial phase of the account, prior to the year the child turns 18.
Anyone (parents, grandparents, friends) are permitted to make private contributions to the child’s Section 530A account, subject to an annual aggregate contribution limit. For 2026, that limit is $5,000.
Employers can also contribute up to $2,500 per year to an account for an employee or an employee's dependent. However, this contribution counts toward that same $5,000 combined limit for the account.
Eligible children born between 2025 and 2028 may receive a $1,000 government pilot contribution that doesn't count against any of the above limits.
Finally, charities or government entities can also make contributions, provided the contributions are made equitably to eligible children.
To open a Trump account, an authorized individual generally makes an election using IRS Form 4547, either through an IRS Individual Online Account or by completing the form according to IRS instructions. The election can also be used to request the one-time $1,000 pilot program contribution for an eligible child.
What Type of Account is Right for my Child or Grandchild: 529 vs. UTMA vs. 530A Accounts
The best type of account, or combination of accounts, is going to depend on each family’s unique circumstances and goals. Whether the goal is education funding, purchase of a first home, getting a jump start on retirement savings, or money to start a business, it is important to make sure you are planning specific to the goal you want to help achieve. Each type of vehicle carries both benefits and drawbacks.
529 education savings accounts continue to be an effective tool for education funding, allowing tax-free withdrawals for qualified expenses, tax-deferred growth, possible state tax deductions and lighter financial aid impact as a parent-owned asset. 529 accounts can also be advantageous estate planning vehicles, assuming education funding is the primary goal for the child, as contributions are usually treated as completed gifts while the account owner maintains control. However, the tradeoff is that 529 accounts are designed primarily for education. They lack some flexibility and can carry tax consequences and penalties for distributing dollars for non-education-related expenses.
Uniform Transfers to Minors Act (UTMA) accounts are a flexible and often overlooked tool for family wealth planning. Assets may be used for a wide range of purposes that benefit the child, and while they lack tax-deferred growth, assets held long-term benefit from favorable capital gains rates. Additionally, there is no contribution limit for a UTMA account. An important consideration is control; once a child reaches a specified age, which varies by state, they gain legal control of the account.
Investment income in an UTMA may also be subject to the “kiddie tax” rules while the beneficiary is a minor. However, once a child ages out of the ‘kiddie tax’ rules, gains are taxed at the child's typically lower rate, which can even be as low as 0%. This may create tax savings opportunities to sell appreciated assets tax-free and funneling proceeds into a Roth IRA if eligible (depending on earned income and contribution limits) or otherwise reinvesting with a higher basis.
530A “Trump” accounts may be most useful as a supplemental retirement jumpstart. Their benefits include tax-deferred growth, opportunity to begin saving at younger ages, and potential one-time government contribution for eligible children born between 2025-2028. However, future distributions can be taxed as ordinary income, early withdrawal penalties may apply to distributions, and investments are restricted.
One potential strategy with a 530A account is to max-fund the account and then convert the account to a Roth IRA as soon as the child is in a favorable tax situation and typically having little to no taxable income (after the child turns 18). A well-timed Roth conversion could set the child up for decades of tax-free growth. It is worth noting that, like UTMA accounts, the child has unrestricted access to a 530A account in their name once they turn 18.
The Bottom Line
530A accounts could offer a genuine opportunity to save meaningfully for a child’s future. For example, if a 530A account is funded with $5,000 every year for 18 years, and earned a steady return each year of 7%, the account would grow to approximately $170,000 before taxes, fees and inflation by the eighteenth year*. Their potential is increased for families who take advantage of the pilot contribution and Roth conversion strategies.
For families who have already maximized contributions to 529 plans and other tax-advantaged accounts, Trump accounts may offer an additional savings option. For those with remaining capacity to save, these accounts could play a supplemental role in a broader wealth transfer strategy and jump-start retirement savings.
Like any financial tool or vehicle, they work best when used thoughtfully and as part of a broader financial plan. Speaking with your team at Ferguson Wellman or West Bearing Investments can help determine whether, and how, a 530A account could fit into your family's planning.
*This is a hypothetical return provided for illustrative purposes only. There is no guarantee that any account will or is likely to achieve profits or losses similar this. Results may differ materially from those presented. Investing in the capital market involves risk and there is a potential for loss.
Disclosure
The views expressed represent the opinion of Ferguson Wellman. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections and other forward-looking statements are based on available information and Ferguson Wellman’s views as of the time of these statements. Past performance may not be indicative of future results. Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational purposes only and not as a substitute for qualified counsel who can determine how this information applies to you. We believe the information provided is from reliable sources but should not be assumed accurate or complete.
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