Attractive Alts to the TA

Over the next several months, you're likely to see significant buzz around Trump Accounts (TA), which are eligible to be opened on July 4, 2026. It will feature a one-time government contribution of $1,000 for eligible children born between 1/1/25 and 12/31/28. Contributions can also be made by individuals, employers and charitable organizations. I'm thrilled with any idea that gets more people involved into the game of investing at an earlier age.

TA's operate mostly out of a Traditional IRA framework. Individual contributions are made on an after-tax basis but benefit from tax-deferred growth. Employer contributions are considered pre-tax. This can make for a record keeping mess when going to withdrawal money from the accounts, as most withdrawals are likely to be treated partly as a return of cost basis and partly taxable as ordinary income.) One favorable feature of TA's is the ability for the funds to be converted to Roth down the line after the owner turns 18.

If the news around TA's scratches an itch to get involved, wonderful. But before rushing in, consider alternatives that have been in place for years.

529 plans: These are not an apples-to-apples comparison to TA's. 529 plans are generally working on more a 20- or 25-year time horizon, where TA's are designed to operate more like a retirement account, funding a much longer runway. If used for qualified higher education expenses, withdrawals from 529's can be tax-free. Record keeping is generally easier, and tax law changes in recent years provide some additional flexibility on withdrawals aside from higher ed. I utilize these for my children.

UGMA/UTMA custodial accounts: lost in the news has been the custodial account. There are no caps on contributions to custodial accounts, and what is often looked at as a negative (no tax deferral) can be a positive planning opportunity to take advantage of the kiddie tax rules during certain windows of life. 

So go ahead and scratch that itch when you first hear about the TA. But depending on your situation, you may end up utilizing a different tool than you first anticipated.