Pure’s Tax Planner, Juliana Fulop, breaks down tax-advantaged child accounts that parents can take advantage of to help their children establish and build a meaningful foundation for their financial future.
Transcript
You may have heard about the new Trump accounts designed to help children save for the future, but how exactly do they work? Trump accounts are established through the US Department of the Treasury under federal law, and are intended for children under age 18 to save for future needs such as education.
Unlike traditional IRAs, which require earned income to make contributions, Trump accounts can be opened regardless of parental income. Parents may open an account for their child by filing Form 4547 Trump account election with their tax return. Any child with a valid Social Security number is eligible.
Children born between 2025 and 2028 will also receive a one-time $1,000 federal seed contribution elected on Form 4547.
The annual contribution limit is $5,000, with contributions beginning July 4th, 2026. Contributions are made on an after-tax basis, but funds grow tax-deferred inside the account. Withdrawals are not permitted until January 1st of the year the child turns 18. At that point, traditional IRA rules apply.
While Trump accounts introduce a new federally backed savings option, they’re just one of several tools available to help families plan for a child’s financial future. A 529 plan is a tax-advantaged education savings account that offers tax-free growth and tax-free withdrawals for qualified education expenses, with the parent typically retaining control of the funds.
In some states, contributions may also be tax-deductible up to certain limits. There are no income restrictions for contributors. Another option is a UTMA account, a custodial investment account in which these assets legally belong to the child and transfer fully to them at age 18 or 21, depending on state law.
UTMA funds may be used for any expense that benefits the child, such as education, braces, or even purchasing a car.
However, UTMA accounts are taxable, and investment income is subject to the kiddie tax rules. Kiddie tax is a federal rule that applies to the unearned portion of a child’s income, including interest, dividends, and capital gains.
Under current rules, the first 1,350 of earned income is tax-free. The next 1,350 is taxed at the child’s rate, and any amount over 2,700 is taxed at the parent’s marginal tax rate.
Regardless of which account best fits your family’s goals, setting aside a portion of your tax refund today can be a smart way to begin building long-term savings for your child’s future. If you would like help proactively planning for your child’s account, take advantage of our free tax analysis to see what opportunities you might want to explore.
Sources:
Vanguard. “What to know about the new Trump accounts for kids.” January 5, 2026. corporate.vanguard.com/content/corporatesite/us/en/corp/articles/what-to-know-about-new-trump-accounts-for-kids
IRS. “529 Plans: Questions and answers.” January 30, 2026. irs.gov/newsroom/529-plans-questions-and-answers.
Investopedia. “Uniform Transfers to Minors Act (UTMA): What It Is and How It Works.” October 6, 2025. investopedia.com/terms/u/utma.asp.
Source: Fidelity. “What to know about the kiddie tax.” April 15, 2025. fidelity.com/learning-center/personal-finance/kiddie-tax
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