Trump Accounts: A New Way to Save for Your Child’s Future

Parents and grandparents already manage various education-savings vehicles, including 529 plans, custodial accounts, and the intricate rules governing financial aid. The House of Representatives’ “One, Big, Beautiful Bill” proposes adding another option: the Trump account.

Originally referred to in the bill as a “Money Account for Growth and Advancement” or “MAGA account,” Trump accounts could finance college costs and early-adulthood milestones, such as a first-time home purchase or the launch of a small business. 

Although the legislation still requires Senate approval, the budget-reconciliation process permits enactment by a simple majority, meaning Trump accounts could become law as early as this summer. The following discussion explains what families and financial advisors should know while the proposal moves toward a final vote.

MAGA account basics

A parent or legal guardian would open a MAGA account for a child younger than eight, and only one account is allowed per child. Each year, you could contribute up to $5,000, a limit that will rise with inflation, while any gifts directly from governments or qualified charities ignore that cap entirely. 

As a sweetener, the Treasury would automatically seed the account with $1,000 for every U.S. citizen born between January 1, 2025, and December 31, 2028. 

All contributions are funneled into a single diversified fund that tracks a broad U.S.-stock index, keeping investment decisions simple. The child may use up to half the balance at age 18, gains full access at 25, and must empty the account by 30. 

Funds can be used for post-secondary education or approved credentials, a first-time home purchase, or capital to start or acquire a small business or family farm. 

Earnings grow tax-deferred, and qualified withdrawals are taxed at the long-term capital-gains rate; unqualified withdrawals trigger ordinary income tax plus a penalty.

Why an inflation index matters

A $5,000 cap may feel modest now, but indexing means the limit should creep up each year, which is helpful if your family wants to top off the account while college costs (and housing prices) keep climbing.

MAGA Account vs. 529: Similar idea, different tools

The MAGA account and 529 plan have some similarities but also key differences.

If college is the only objective, the 529’s tax-free withdrawal is hard to beat. The MAGA account’s appeal is flexibility. Your child could treat it as a down-payment fund or entrepreneurial springboard without draining education savings.

Pros, cons, and key considerations

Before you rush to open yet another account, take a breath. Trump accounts come with clear advantages, but they also carry trade-offs that could undercut your long-term goals if you are not careful.

The next few bullets break down the biggest perks, the potential pitfalls, and a few gray areas where the right choice depends on your family’s priorities and tax situation.

Potential upsides

• Built-in diversification of goals: Not every child follows a straight line from diploma to cubicle. MAGA account money can pivot with their plans.
• Automatic boost for newborns: A $1,000 head start can compound into real money, especially if invested for 18 years.
• Simple, set-it-and-forget-it investing: One broad market fund, no temptation to day-trade.

Possible drawbacks

• Narrow investment choice: No bonds or international exposure to smooth the ride.
• Smaller cap than most college price tags: $5K per year won’t close a six-figure tuition gap.
• Tax bite on the back end. Long-term capital-gains rates may look modest, but over 18 years, they can sap thousands from a college fund. For instance, investing $1,000 a year at a 7% return grows to roughly $34,000, of which $16,000 is earnings. A 15% capital-gains tax would cost $2,400, which would stay in your account if you used a 529.
• Potential confusion and FAFSA impact. Because Trump accounts sit beside 529 plans, some parents may choose them for the $1,000 seed and later lose the tax-free benefits of a 529. MAGA balances also appear likely to be treated like UGMA/UTMA custodial assets on the FAFSA, counted as the student’s property and assessed at a higher rate than parent-owned 529 assets. Without an explicit exemption, that could reduce need-based aid.

What you can do while Congress decides

Legislation can last for months, yet smart savers do not sit idle. Even without a final vote, you can run the numbers, line up paperwork, and adjust your college-funding roadmap so you are ready when Congress gives the green light or pivots in a different direction.

1. Follow the floor votes. The House aims to pass the bill by the end of May; the Senate could take it up in June.
2. Prepare paperwork for 2025–2028 newborns. If the pilot seed deposit provision survives, you’ll likely need to open a MAGA account soon after birth to claim the $1K.
3. Stay alert to state conformity. Some states piggyback on federal definitions, while others write their own rules, which affect tax deductions or credits.

Bottom line

Trump accounts won’t replace 529 plans, but they could become a handy second option, giving kids a pot of money that flexes with whatever path they choose after high school. Keep funding your 529, watch the legislation, and be ready to act if Trump accounts get the green light. A little preparation could unlock one more lever to help the next generation start strong.