When Michael and Susan Dell committed $6.25 billion last week to launch investment accounts for 25 million American children, it put one of the newest and most-hyped children’s savings vehicles at the forefront: trump account.
The accounts were created under “A Big, Beautiful Act” signed into law by President Donald Trump in July, promising $1,000 in advance funding from the U.S. Treasury for every American baby born between 2025 and 2028. Dell’s donation adds $250 for qualifying children under 10, which sounds like it will be free for families.
But financial advisers say parents shouldn’t rush away from proven savings strategies. Trump’s accounts may meet specific needs, but they may not fit every family’s future goals.
“I think it’s about setting super goals based on what you want to achieve with your savings,” says Travis Veenhuis, a certified financial planner at SGH Wealth Management in Detroit.
William Connor, a partner and wealth advisor at Sachs Wealth Advisors in New York City, agrees, but has some caveats.
“It’s unclear exactly what these Trump accounts are,” Connor said. “Overall, I like the idea; I don’t think the savings are enough.”
The real question is: Where is your money best spent?
The Trump Account acts as a tax-deferred savings account for children under 18 years of age. Parents can save up to $5,000 per year (after tax, meaning no deductions), and the investment can grow tax-deferred until the child turns 18.
This is where things get interesting. At age 18, the account is converted to a traditional IRA. The children can then use the money for education, buying their first home, starting a business or retiring.
Connor’s understanding is that withdrawals will be taxed at capital gains rates – which should be zero for most young people, or perhaps 15% if they have some income. “It’s lower than normal income anyway,” he said.
These accounts are limited to investing in low-cost index funds that track the S&P 500 or a similar U.S. stock index.
Math looks compelling on paper. A family can contribute up to $5,000 per year, with a 6% growth rate, and the account can be approximately $191,000 when their children turn 18according to the Schwab Center for Financial Research.
If the account remains the same without additional contributions, the assets in the account could balloon to $2.2 million when the beneficiary reaches age 60.
Combined with an initial $1,000 in government seed funding (or $250 for qualifying families receiving a Dell donation), the potential for compound growth is huge.
Connor sees value in more than just dollars.
“When you have a newborn and you have your whole life ahead of you, certainly over the years you can invest a few bucks over 18 years and it makes a big difference,” he said.
In 2024, the average 529 account balance will grow slightly more than $212 per monthaccording to the Education Data Initiative, only 35% of households use dedicated college savings.
Households are carrying more debt than ever before due to rising inflation, soaring housing and day care costs, a weak job market and economic headwinds. Total U.S. household debt grew in the third quarter of 2025 US$197 billion, a new record of US$18.59 trillionAccording to the New York Fed.
Combined, these factors can make it more difficult for families to find enough cash in their monthly budgets to set aside for their children’s futures. Additionally, Trump accounts have significant limitations and may not meet the needs of every family.
“While the child is under 18, no withdrawals are allowed on the Trump account,” explains Wayne Hughes. “This can be a potential deal-breaker for parents who may need flexibility until their children reach adulthood.”
These accounts also lack some of the tax benefits offered by competing vehicles. Donations are not tax deductible and investment earnings are tax deferred rather than tax deductible.
When the children eventually withdraw the money, they will face potential tax implications, including a 10% refund penalty until age 59 1/2, unless certain exemptions apply, according to the White House.
Best for: Families save specifically for the cost of education from kindergarten through graduate school.
How they work: A state-sponsored investment account to which contributions are tax deductible at the state level and withdrawals are tax free for qualified education expenses. Your children are the beneficiaries of the account, but you retain control of the account regardless of their age.
Annual contribution limit: It varies by state, but typically the lifetime limit is $300,000 to $500,000.
Main advantages:
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Tax-free growth and education withdrawals.
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If the original beneficiary decides not to go to college or trade school, the beneficiary can be changed to another child.
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State tax credit (varies by state – for example, New York offers $10,000 per year).
Key points: Non-education withdrawals are subject to taxes and a 10% income penalty. Some states do not allow tax-free withdrawals for K-12 expenses.
Experts believe: “If those funds are earmarked for some kind of education savings, I do believe that a 529 is still the best option for those people because many of them will still get some level of state tax deduction for the contribution,” Veenhuis said.
Best for: Build long-term retirement savings for your children when they have income.
How they work: After-tax contributions are completely tax-deductible. Unlike the Trump Account, qualified withdrawals in retirement are also tax-free. You, the parent, are responsible for managing the account until your child reaches the age of majority (18 or 21, depending on your state).
Annual contribution limit: $7,000 in 2025but cannot exceed the child’s income.
Main advantages:
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Lifetime tax-free growth.
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Donations can be withdrawn at any time without penalty.
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Penalty-free credits of up to $10,000 are available for first-time home purchases.
Key points: The child’s income must be equal to or greater than the contribution amount.
“If your goal is just for your child to retire, I still think a Roth custody might be more advantageous than a Trump account because tax-free growth can accrue over the child’s lifetime,” Wynn Hughes said.
However, he noted that the income requirements confuse many families. In other words, your three-year-old cannot contribute unless he is modeling or acting. Even teenagers need legal W-2 income.
Best for: General savings without a specific goal, or money set aside for non-education expenses such as a first car or a down payment on a home. Uniform Transfers to Minors Act (UTMA) accounts are more flexible and can transfer any type of asset, while Uniform Gifts to Minors Act (UGMA) accounts are strictly limited to financial assets such as stocks, bonds, and cash.
How they work: Payments go into an after-tax escrow brokerage account. Once the child reaches the age of majority (18 or 21, depending on the state), there are no restrictions on how the money can be used.
Annual contribution limit: There are no federal restrictions, but IRS gift tax rules apply (currently $19,000 per person in 2025).
Main advantages:
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There is complete flexibility in how you use your funds.
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There are no income requirements.
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You can invest in almost anything.
Key points: When the children reach the age of majority, the money legally becomes their property and can be used as they wish without parental supervision or express consent.
“I think it’s an important issue to consider,” said Wayne Hughes. “If I’m going to be saving thousands of dollars a year in this account, would I feel comfortable letting my child have an account with maybe tens to hundreds of thousands of dollars in it that they can spend almost as they please?”
This control issue makes some parents nervous. If you don’t believe your 18-year-old can bring a six-figure windfall, UTMA may not be the right solution.
But Connor used this strategy with his son’s 529 specifically for flexibility.
“The reason I did it was to consider private high schools,” he said. UTMA can fund things that a 529 cannot fund, such as summer camps, intensive courses, or trade school fees.
“If it’s something like summer camp, or NASA has an enrichment program in the summer, that costs money. You can’t do that with a 529,” Connor said. “It could be very beneficial for your child.”
Best for: Savers who are less than 12 months away from their target or who are extremely risk averse.
How they work: Traditional savings instruments offer guaranteed returns through interest, with high-yield savings accounts (HYSA) currently offering returns of around 4%-5%.
Main advantages:
Key points: HYSA returns lag long term The average stock market gain is 10%According to Experian.
“If we’re saving for a goal and that goal is less than 12 months away, then I usually recommend keeping those funds liquid and safe so you can access them when you need them,” Veenhuis says.
So what does Trump’s statement mean?
According to Veenhuis, they are somewhere in the middle ground between a UTMA and a Roth IRA.
“I think it could be an effective alternative to programs like UTMA or UGMA, which don’t have specific targets for higher education costs,” he said. “It’s not just for retirement, but maybe you’re just looking for a general investment account to provide your children with something like a down payment on a house or a car purchase at some point in their young adult lives.”
Wayne Hughes points out that the main advantage of a Trump account over a custodial Roth IRA is: no income requirement.
Connor sees the Trump Account as another tool in the financial planning toolbox, but emphasizes that its educational value in promoting financial literacy may be just as important as the money saved.
“These are great things for kids to help them learn and understand what compound interest is,” Conner said. “It’s something that most people don’t know much about, and it’s obviously a big deal in financial markets.”
The earlier kids are exposed to investing concepts, Connor said, “the sooner they start to understand that these things don’t guarantee success, but it certainly increases the likelihood.”
