Everything California Families Should Know About Trump Accounts

“Trump accounts” have rapidly become a topic of interest for parents and grandparents seeking long-term savings tools for children. In this article, the California estate planning attorneys at Kavesh, Minor & Otis explain what Trump accounts are, who is eligible, how they stack up against 529 plans and UTMA accounts, and how they may affect estate planning in California.

From the start, the concept of Trump accounts warrants careful scrutiny. These new accounts come with tax rules, eligibility constraints, and trade-offs that families in California should understand before making decisions. Below is a full, up-to-date guide (as of late 2025) tailored for Californians thinking about securing their children’s or grandchildren’s financial future.

What Are Trump Accounts?

Trump accounts are a newly established, tax-deferred investment vehicle created by the One Big Beautiful Bill Act (signed into law July 4, 2025). They are intended to give every eligible child a modest head start in investing, by having the federal government seed the account and then allowing private contributions up to a capped amount. Earnings in a Trump account grow tax-deferred until withdrawal under certain rules. After the child reaches adulthood, the account effectively transitions into a traditional IRA for them (with tax treatment under IRA rules).

Because this structure is new and many operational details are still to be fleshed out via Treasury guidance, families should treat Trump accounts as a developing option rather than a fully mature product.

Who Is Eligible to Open a Trump Account?

Families will want to confirm whether their children or grandchildren qualify. Here are the eligibility rules as we currently understand them:

Birth years and federal seed deposit window. Children born between January 1, 2025 and December 31, 2028 who are U.S. citizens and have a Social Security number are eligible to receive the initial $1,000 federal deposit into a Trump account.
Time to open. Trump accounts cannot be opened before July 4, 2026.
Older children. Children under age 18 who were born outside the 2025–2028 window may still be able to open a Trump account voluntarily (without receiving the initial $1,000 seed).
Social Security number requirement. The child must have a Social Security number, and parents or guardians establishing the account generally must comply with identifying information requirements.
No income requirement. Unlike many retirement accounts, there is no requirement that the child have “earned income.”
Contribution cutoff. Once the child turns 18, contributions to the Trump account are no longer permitted.

It’s worth noting that several details remain uncertain, pending Treasury or IRS rules. For instance, whether automatic enrollment will be used (i.e. opening accounts by default for eligible children) is not guaranteed under the law, though some experts urge its adoption to reach more children.

Because eligibility rules may evolve, families in California should check with a qualified estate planning attorney in the state for timely updates.

Key Features and Rules of Trump Accounts

Once eligibility is confirmed, understanding how Trump accounts operate is critical. Below is a breakdown of major features and constraints:

Contributions and Seeding

Federal seed deposit. For eligible children born 2025–2028, the federal government will deposit a one-time $1,000 into the Trump account.
Contribution limit. Private contributions (from parents, grandparents, other relatives, etc.) are capped at $5,000 per year per child.
Employer contributions. Employers may contribute up to $2,500 per year for an employee’s child or for a child of an employee, and these contributions count toward the $5,000 annual limit.
No deductions now. Contributions while the child is a minor are not tax-deductible.
Inflation indexing. The $5,000 limit is expected to be indexed for inflation in future years.

Investment Options and Growth

Mandatory investments in index funds. The law requires that Trump account assets be invested in mutual funds or ETFs that track a broad U.S. equity index (for example, the S&P 500 or a similar diversified U.S. stock index).
No leverage or exotic strategies. The funds cannot use leverage and must aim to keep fees minimal, consistent with the statutory directives.
Tax-deferred growth. Investment growth is tax-deferred until funds are withdrawn under the rules described below.

Withdrawal Rules and Qualifying Uses

No withdrawals before age 18. Funds may not be distributed while the beneficiary is a minor (i.e. before age 18).
Qualified uses after age 18. After age 18, up to 50% of the balance can be withdrawn for qualified purposes without penalty. Qualified uses include post-secondary education expenses, credentialing or maintenance of credentials, home purchase (first home), and small business or farm expenses (if connected to a qualifying loan or program). These qualified uses are taxed favorably (e.g. at capital gains rates).
Other withdrawals taxed/penalized. Withdrawals not used for qualified purposes can incur ordinary income tax plus a 10% penalty if done before the age of 30 for non-qualified usage.
“End of life” rules. On the beneficiary’s 31st birthday, any remaining balance must be distributed and becomes taxable.

Because of these restrictions, Trump accounts may feel much more like retirement/IRA vehicles than flexible educational savings accounts.

Comparison with Other Savings Vehicles for Children

Parents and grandparents often consider more traditional options like 529 plans and UTMA (Uniform Transfers to Minors Act) accounts. Below is how Trump accounts compare.

Trump Accounts vs. 529 College Savings Plans

Some advantages of 529s for many families may include:

Tax-free growth for qualifying education. Earnings in a 529 plan grow tax-free, and distributions for qualified education expenses are exempt from federal (and often state) tax.
State income tax benefits. In many states, including California, contributions may receive state income tax deductions or credits (though California itself does not offer state tax deductions for 529 contributions).
More flexible education use. 529 funds can pay for tuition, room & board, computers, test fees, apprenticeship programs, K–12 private school tuition (up to limits), and more.
Control and ease. The account owner (usually the parent) retains control; if the child does not use all funds for education, the money can be redirected to another family member.
Lower withdrawal penalties. Non-education withdrawals incur income tax and possibly a 10% penalty, but you can often roll funds for other beneficiaries.

Some limitations of this in comparison to Trump accounts, however, are:

The 529 does not provide a federal seed grant—parents/grandparents must fund it themselves
If 529 funds are withdrawn for non-education purposes, the earnings are taxed and penalties apply
529s do not directly help with retirement or business/small business use

In short, for families primarily saving for college, 529 plans remain a very strong, proven option. But Trump accounts are broader in permissible use (education, home, business), albeit with stricter age and rules.

Trump Accounts vs. UTMA / Custodial Accounts (e.g. UTMA / UGMA)

Key features of UTMA/UGMA accounts include:

No restrictions on use. The beneficiary can use funds for any purpose (education, travel, business, etc.), once they reach the age of legal majority (usually 18 or 21, depending on state).
Tax treatment. Earnings taxed at the child’s rate (with potential “kiddie tax” limits).
Fewer penalties. There is no penalty for withdrawals.
Gift limits. Contributions are subject to annual gift tax exclusion limits (for 2025, up to $18,000 per donor per donee without gift tax).
No special seeding or federal match. UTMA accounts do not receive government seed contributions or special tax advantages.

In contrast, some limitations of UTMA/UGMA accounts relative to Trump accounts are:

No tax-deferred compounding—investment gains are taxed yearly (subject to child/“kiddie tax” rules)
When the child reaches the transfer age, control shifts to them, and they could spend it in ways parents disagree with
For estate planning, UTMA assets are considered part of the parent/grandparent’s gift/estate

When Trump Accounts Make Sense (and When They Don’t)

For some families, Trump accounts may be a useful complement to 529s or UTMA accounts, especially when:

They already contribute heavily to 529s and want a vehicle with broader future uses beyond education
They are comfortable with stricter rules and are focused on long-term holdings rather than short-term flexibility
They want to leverage the government seed funding available for children born 2025–2028
They are financially situated so that penalties or taxes are less of a burden, or they intend to use funds for a qualified purpose

However, Trump accounts may not be ideal if you need flexibility, foresee early withdrawals, or the rules (still developing) prove burdensome.

Estate Planning and California-Specific Considerations

For Californians, planning for your children’s financial futures involves layering account choices with estate planning strategies. Here are important points families should consider:

Counting Trump Accounts in Estate/Gift Planning

Gifts to Trump accounts. Contributions to a child’s Trump account count as a gift from the contributor. In 2025, the annual gift tax exclusion is $18,000 per donee (check future limits). Contributions within that exclusion typically need no gift tax return, but contributions above may require filing a gift tax return or use of lifetime exemption.
Estate inclusion. If a grandparent funds a Trump account, that contribution typically becomes part of their estate (or reduces their remaining “taxable gifts” allowance) for estate tax purposes.
Generation-skipping / GST issues. If contributions cross generational lines (e.g. from grandparent to grandchild), consider how generation-skipping transfer (GST) tax rules might apply.

Because Trump accounts are new, there is less historical guidance than for more established vehicles. The attorneys at Kavesh, Minor & Otis can help structure contributions to align with your estate planning strategy.

Creditor Protection and Asset Treatment

Protection from creditors. Unlike IRAs or certain retirement accounts, it is not yet clear how strongly Trump accounts will be shielded from creditors in California. Traditional retirement accounts like IRAs enjoy some protections under federal bankruptcy law and California statutes, but whether those protections apply to Trump accounts may depend on future regulations.
Community property/spouse claims. In California, spousal or community property claims may affect how any funds contributed during a marriage are considered in a divorce or claim. Careful titling and structuring are important.

Impact on Means-Tested Benefits

One key risk: if Trump account balances are counted in the household’s assets, they might affect eligibility for means-tested public benefits (e.g. Medicaid, Supplemental Security Income, CalFresh). Some early wealth-building programs explicitly exempt these assets from benefit-calculation rules; the Trump account law does not clearly provide blanket exclusion.

Families relying on public benefits may need to assess whether the growth of a Trump account could jeopardize eligibility. Lawyers in the firm can help structure contributions or advise on whether the asset should be excluded or offset by other means.

Coordination With Other Estate Tools

Trust funding. Some families may prefer to fund a trust (e.g. a minor’s trust) that can invest among various vehicles (including possibly contributing to Trump accounts) and allow more control or flexibility.
Successor strategies. Given that at age 31 any remaining Trump account funds must be distributed, older generational wealth transfer planning remains necessary for the remainder of your estate.
Beneficiary designation and rollover. After age 18, the Trump account rolls into a traditional IRA for the beneficiary. Proper rollover and designation steps must be handled to avoid tax missteps.

In short: Trump accounts should be viewed as part of a broader estate plan, not a replacement for trusts, wills, or other estate planning tools.

Potential Benefits and Risks

No financial decision is risk-free. Below is a balanced look at potential upsides and downsides for families.

Potential Benefits

Trump accounts offer several compelling advantages designed to promote long-term wealth building for the next generation.

Seeded capital. The $1,000 federal seed for children born 2025–2028 means free money to get the account started.
Tax-deferred compounding. Growth is sheltered from taxes until withdrawal, which may magnify long-term results.
Encouraging long-term savings mindset. For many families, this introduces investing and asset-building habits early.
Broad permissible uses. Compared to 529s, Trump accounts allow qualified use for business, homebuying, and credentials, not only education.
Employer match potential. If employers opt in, contributions to employees’ children may boost savings potential.

These potential benefits make the accounts a worthy consideration for families seeking a versatile, long-term savings vehicle.

Risks and Downsides

It is equally important to weigh the significant limitations and potential pitfalls associated with these restricted accounts.

Restricted access. Until age 18, funds are locked in. Even after, only 50% is usable for qualified purposes. Other withdrawals carry penalties and taxes.
Fee erosion. Administrative and management fees—if not tightly controlled—may significantly erode returns, especially for smaller balances.
Lack of flexibility. Compared to UTMA, which allows funds for any purpose without penalty, Trump accounts are more constrained.
Uncertainty and regulatory risk. Many operational details are still pending Treasury and IRS rules.
Benefit eligibility risk. The possibility that account balances may count against household assets in evaluating eligibility for public assistance is a serious concern for some families.
Concentration risk. Because investments are limited to U.S. equity index funds, the account may have greater exposure to market downturns without other asset classes to diversify.
Inequality risk. Critics argue Trump accounts may disproportionately benefit wealthier families who can make large contributions, while lower-income families might struggle to contribute beyond the seed.

Acknowledging these risks is crucial for making a balanced and informed decision about participating.

How Families in California Might Use Trump Accounts

Here are a few ways California parents or grandparents could incorporate Trump accounts into a broader saving or estate strategy:

Supplemental bucket. Use Trump accounts alongside 529 plans. First, fund the 529 for anticipated education needs, then contribute to the Trump account for longer-term or alternative uses.
Delayed contribution. Families might seed the Trump account and then gradually fund it when cash flow is available, rather than front-loading contributions.
Trust coordination. You may choose to hold part of the assets in a trust and direct that trust to make contributions to a Trump account over time, preserving control and tax efficiency.
Estate gift planning. Use the annual gift tax exclusion to fund Trump accounts for multiple grandchildren over time, reducing the larger estate subject to taxation.
“Bank” for non-education uses. Since Trump accounts allow qualified uses beyond education, funds might be held in a child’s Trump account rather than a 529 if you anticipate entrepreneurial pursuits or home purchase.

Because California does not provide a state income tax deduction for 529 contributions, combining vehicles may make sense in certain financial situations.

What to Watch and What to Do Next

As of late 2025, Trump accounts represent an evolving tool, rather than a fully settled one. Families interested in them should watch closely and take measured steps.

Things to Monitor

Families should keep a close watch on several key areas that will define the utility and security of Trump accounts.

Treasury / IRS regulations. These will clarify implementation details, rollover rules, fees, and eligibility.
Automatic enrollment. Whether the government or Treasury will default-open accounts for eligible children may determine how many families benefit. (Aspen Institute)
Fee structure. Be alert to how providers price account services, recordkeeping, and fund management.
State interactions. How California treats Trump accounts for tax, creditor, and public benefit purposes could change.
Performance assumptions. Because the account is equity-based, real returns depend heavily on market performance.

By monitoring these evolving factors, you can make a more informed decision when these accounts become available.

What Families Should Do Now

Even while awaiting final rules, there are concrete, proactive steps families can take to prepare for Trump accounts.

Talk to an estate planning attorney. The attorneys at Kavesh, Minor & Otis can help you evaluate whether Trump accounts make sense within your broader estate plan.
Simulate contributions. Run scenario models: if you contributed, say, $2,000/year for 18 years, what might the account grow to? How does that compare with other vehicles?
Stay diversified. Don’t put all your eggs in one basket. Use multiple types of accounts according to your goals and flexibility needs.
Watch for guidance. Be ready to act when final rules are published (especially mid-2026 when account opening begins).
Update legacy documents. If you plan on naming the account or directing trust distributions to it, ensure your will/trust documentation accounts for that.

Taking these measured actions now will ensure you are ready to incorporate a Trump account into your financial plan effectively and responsibly.

How a California Estate Planning Lawyer Can Help

A California estate planning lawyer can help parents and grandparents understand how Trump accounts might fit into their overall strategy and decide which path best meets their family’s goals.

Attorneys at Kavesh, Minor & Otis can explain state-specific tax and creditor implications, model the impact of contributions on estate and gift tax exposure, and coordinate Trump account planning with trusts, wills, and beneficiary designations. They can also advise families about protecting means-tested benefits, structuring multi-generational gifts, and using annual gift tax exclusions effectively.

Practically, the firm can:

Run numbers comparing Trump accounts, 529 plans, and UTMA accounts under likely regulatory scenarios
Draft trust provisions or gifting instructions that direct contributions to the most appropriate vehicle
Advise on titling and timing of gifts to reduce estate tax and GST exposure
Evaluate creditor protection and community property implications under California
Help clients update estate documents once final Trump account regulations are released

By working with a California estate planning lawyer, parents and grandparents can make an informed decision about whether Trump accounts belong in their family’s plan and how to implement contributions in a way that aligns with their long-term goals.

If you’d like to discuss whether Trump accounts make sense for your family or how they should fit into your existing estate plan, the attorneys at Kavesh, Minor & Otis are available to help.