Trump Accounts can grow to millions, but withdrawals face income tax

Trump Accounts and who can contribute

24/7 Wall St. says Trump Accounts are investment accounts created by Congress last year for every American child, and contributions opened in July. The article says more than 6 million children had been enrolled by early summer. It reports that anyone can add money to an account, including a parent, grandparent, aunt, or employer.

The piece frames the main appeal as the idea that a small annual contribution can become a very large sum over time. It says that claim is real in arithmetic terms, but that the tax treatment at the end gets less attention than the growth potential.

How the money can grow

According to 24/7 Wall St., the total that can go into a child’s Trump Account from all sources is limited to $5,000 a year. The employer portion is capped at $2,500. The article also says children born from 2025 through 2028 receive a one-time $1,000 government deposit, and that deposit does not count toward the annual cap.

The example in the article assumes a grandmother contributes the full $5,000 every year from birth until age 18. That totals $90,000 of her own money. Because family contributions before age 18 can only be invested in low-cost U.S. stock index funds, the article assumes a 7% annual return, described as slightly below the long-term return of the S&P 500. Under that assumption, the account reaches about $170,000 by age 18. The article says the government’s $1,000 deposit would grow to about $3,400 over the same period.

From there, the article says that if the account stays invested at 7% and the child does not add anything, the $170,000 could grow to about $4 million by age 65. It notes that no one can guarantee 7% returns for 65 years and that $4 million in 2091 would not have the same buying power as it does today, but says the basic compounding effect is sound because money invested at birth has 47 more years to grow than money invested at age 18.

The tax catch at age 18 and later

24/7 Wall St. says the overlooked issue is taxes. It reports that the grandmother gets no deduction for the $5,000 contribution because the money goes in after tax. When the child turns 18, the account becomes a traditional IRA, and the rules for traditional IRAs apply.

Under those rules, the article says the original $90,000 of contributions can come back out tax free, but the $80,000 of growth is taxed as ordinary income when withdrawn. The article says that is different from a regular brokerage account, where the same index fund would be taxed at capital gains rates. It also says that taking money out before age 59 and a half would trigger a 10% penalty on the growth, unless an exception applies, such as college expenses or a first home. For a teenager, the article says the kiddie tax rules may also apply a parent’s tax rate to that income.

The same tax treatment applies later as well, according to the article. By age 65, it says nearly all of the roughly $4 million would be growth, and that growth would be taxed as ordinary income when withdrawn. The article gives the example of a retiree taking out $160,000 a year from the account and says that person would pay income tax on almost all of it.

How it compares with a 529 and other accounts

The article compares Trump Accounts with 529 plans. It says that if the same $5,000 a year were put into a 529 and earned the same 7%, it would also reach about $170,000. If used for college, the article says the $80,000 of growth would not be taxed at all. It also says a grandparent can front-load five years of gifts into a 529 at once.

24/7 Wall St. says a 529 cannot be used the same way as a retirement account that compounds for decades, although up to $35,000 of leftover 529 money can now be rolled into a child’s Roth IRA. It also says a custodial Roth IRA requires the child to have earned income, while a Trump Account does not.

The article’s takeaway

The article says the choice depends on the goal: if the money is for college, the 529 is better on taxes; if the goal is to leave money untouched for decades, the Trump Account starts retirement saving at birth. It also says a grandparent’s $5,000 annual gift is within the $19,000 annual gift-tax exclusion for 2026, which rises to $20,000 in 2027, so a grandparent could fund both a Trump Account and a 529 for the same grandchild in the same year without filing a gift tax return.

The article’s bottom line is that a grandparent who contributes $5,000 a year for 18 years could leave an 18-year-old about $170,000 and, if left alone at 7%, about $4 million by age 65. It adds that the $90,000 in contributions comes back tax free, while the growth is taxed as ordinary income when withdrawn.