A New Way to Save for a Child's Future
Families have several ways to save and invest for a child's future, whether the goal is education, retirement, or broader financial support. 530A accounts, commonly known as Trump Accounts, add a new option to consider.
Established under Section 530A of the Internal Revenue Code, Trump Accounts are a new type of individual retirement account for children. They have specific rules around contributions, investments, access to funds, and tax treatment.
How Do 530A (Trump) Accounts Work?
A 530A account can be established for an eligible child under age 18 with a valid Social Security number. The child owns the account, while a responsible adult manages it on the child's behalf during the growth period.
A few key features include:
- Parents, grandparents, and others may contribute.
- The child does not need earned income for contributions to be made.
- Annual contributions are generally limited to $5,000, although certain contributions do not count toward that limit.
- Investments are limited to eligible mutual funds and exchange-traded funds (ETFs) that meet federal requirements.
- Funds generally cannot be accessed before January 1 of the year the child turns 18. At that point, traditional IRA rules generally apply.
For current program details and requirements, visit TrumpAccounts.gov.
Who Is Eligible for the $1,000 Federal Contribution?
As part of a federal pilot program, eligible children born between January 1, 2025, and December 31, 2028, can receive a one-time $1,000 federal contribution when an election is made.
Eligibility requirements apply. The IRS provides additional information about eligibility, establishing an account, contributions, and other program rules in its Instructions for Form 4547.
How Does a 530A Account Compare With Other Options?
A 530A account is one of several ways to save for a child, and each account type serves a different purpose.
- 529 plans are designed primarily for qualified education expenses and offer tax-deferred growth and tax-free withdrawals for qualified education expenses.
- Custodial Roth IRAs may provide a long-term retirement savings opportunity for children with earned income.
- UGMA/UTMA custodial accounts provide flexible savings for the child's benefit, with the child gaining control of the assets at the applicable age under state law.
The appropriate approach depends on factors such as the purpose of the savings, when the money may be needed, tax considerations, and how much flexibility and control are desired. More than one type of account may also have a role in a family's broader financial plan.
Download the Saving for a Child Comparison Guide for an at-a-glance look at these four account types.
Consider the Bigger Picture
Understanding the available options is an important first step when saving for a child's future. Considering how each account works within your family's broader goals can help you determine which approach, or combination of approaches, may make sense.
A Midland Wealth Management Advisor can help you evaluate your options and discuss how saving for a child may fit within your broader financial plan.
