What to know about the House Tax Bill’s New ‘Trump Accounts’

As part of the recently passed House version of President Trump’s new tax bill, a new child-focused savings vehicle—originally dubbed "MAGA Accounts," now rebranded as “Trump Accounts”—has entered the national conversation. Promising a one-time $1,000 deposit from the federal government for every child born between January 1, 2025, and January 1, 2029, these accounts are being pitched as an investment in America’s future, but how do they stack up against better-known options like 529 plans or custodial brokerage accounts? Let’s break it down.

What Are Trump Accounts?

Trump Accounts are designed as long-term savings vehicles parents can use to provide for their children’s future. Each eligible child would receive $1,000 from the Department of the Treasury at birth, with no income restrictions or means-testing. Parents could then contribute up to $5,000 per year into an account that would be invested in a diversified fund tracking the U.S. stock market. The funds could eventually be used for a narrow list of "qualified" purposes: education, first-time home purchases, or starting a small business.

On the surface, that sounds reasonable. The money grows tax-deferred, and qualified withdrawals are taxed at the long-term capital gains rate, which is modestly beneficial compared to a regular savings account. That’s where the benefits begin to taper off, however.

How They Compare: 529 Plans and Custodial Accounts

529 Plans: A Stronger Tax Shelter with Growing Flexibility

A 529 plan is a state-sponsored education savings plan with powerful tax advantages:

Earnings grow tax-free.
Withdrawals for qualified education expenses are tax-free.
Recent rules now allow rollovers into Roth IRAs for the beneficiary, offering even more flexibility if the funds aren't used for school.
High contribution limits ($19,000 per person, $38,000 for couples per child per year without gift tax issues).

While 529s are somewhat limited to education-related expenses, recent legislative updates have expanded qualified uses to include student loan repayments, apprenticeships, and certain adult learning programs. For most families focused on education planning, the 529 remains a gold standard.

UGMA/UTMA Accounts: More Freedom, Fewer Restrictions

Custodial accounts under the Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) are taxable accounts set up for a child, with the parent or guardian serving as custodian. Here’s what they offer:

Full access at the age of majority (typically 18 or 21).
Funds can be used for any purpose that benefits the child, not just education or business.
Investment income is taxed annually, but the first $1,350 is tax-free and the next $1,350 is taxed at the child’s rate (which is usually quite low).
No penalties or hoops to jump through for non-qualified withdrawals.

The tradeoff is that there are no tax-deferred growth benefits, and income is subject to taxation each year. Still, for many families, the flexibility outweighs the modest tax downside.

Trump Accounts: Too Many Strings, Not Enough Carrots

At best, Trump Accounts offer tax-deferred growth and long-term capital gains treatment on qualified withdrawals, but that's hardly revolutionary. Regular brokerage accounts already provide capital gains treatment, and 529 plans go further with fully tax-free distributions for qualified education costs.

The Trump Accounts come with their own set of strict rules:

No distributions before age 18.
Between ages 18–24, only 50% of the balance can be accessed.
Withdrawals for non-qualified purposes before age 30 trigger ordinary income tax plus a 10% penalty.

Compare that to a custodial account where the child (or the custodian) can access the funds without penalty and use them for any reason: college tuition, a car, housing costs, emergency expenses, or anything else that serves the child's best interest.

Even the tax treatment of Trump Accounts isn’t a big win. Yes, growth is tax-deferred, but most custodial account holders would be better off paying minimal taxes while their child is in a low tax bracket, rather than deferring until adulthood, when their marginal rate may be higher.

The Bottom Line

There’s a pattern with tax-advantaged accounts: the more restrictive the rules, the better the tax benefit needs to be. Roth IRAs, HSAs, and 529s justify their limitations by offering powerful tax-free growth or health-related flexibility. Trump Accounts fall into an awkward middle ground: more rigid than a UTMA, but with none of the powerful tax perks of a 529.

Yes, the one-time $1,000 taxpayer-funded deposit is a compelling reason to accept the account. There’s no reason to turn down free money, but beyond that, families would be wise to consider other options before contributing their own funds. If you’re saving for education, a 529s probably still the best route. If you value flexibility, a custodial account likely offers more freedom with similar or better tax outcomes.