Trump Account Tax Questions

Not while they grow. Trump Accounts are tax-deferred during the growth phase (birth to 18). Once the account converts to a traditional IRA at age 18, withdrawals are taxed as ordinary income — just like any traditional IRA.

No. A Trump Account is NOT a Roth account. Growth is tax-deferred (like a traditional IRA), meaning you pay taxes when you withdraw. A Roth IRA offers tax-free growth and tax-free withdrawals. This is one of the most common misconceptions.

Yes. After the account converts to a traditional IRA at age 18, withdrawals are taxed as ordinary income. If your child withdraws before age 59½, they may also owe a 10% early withdrawal penalty on top of income taxes.

No. Contributions to a Trump Account are made with after-tax dollars — you do not get a tax deduction. However, employer contributions (up to $2,500/year) are excluded from the employee's gross income under IRC §128.

The IRS has not yet issued specific guidance on how Trump Accounts interact with FAFSA. Since the account converts to a traditional IRA owned by the child at 18, it could potentially be counted as a student asset. Check with a financial aid advisor for the latest guidance.

During the growth phase (before 18), the IRS guidance does not specifically address Medicaid impact. Once it becomes a traditional IRA at 18, standard IRA rules apply for Medicaid eligibility determinations, which vary by state.

The account balance itself is not income. Only withdrawals count as taxable income. If your child withdraws $10,000 at age 25, that $10,000 is added to their taxable income for that year.

Withdrawals are taxed at your child's ordinary income tax rate in the year they withdraw. An 18-year-old with no other income who withdraws $15,000 would pay very little tax (likely in the 10-12% bracket). Use our Withdrawal Simulator to model specific scenarios.

At age 18, the account converts to a traditional IRA. Withdrawals before age 59½ are subject to a 10% early withdrawal penalty plus ordinary income tax. Some exceptions apply (first-time home purchase up to $10,000, qualified education expenses, etc.).

No — that's the benefit. Under IRC §128, employer contributions to Trump Accounts (up to $2,500/year per employee) are excluded from the employee's gross income. You don't pay income tax or payroll tax on them.

Yes. When the Trump Account converts to a traditional IRA at age 18, your child can convert it to a Roth IRA. They'd pay income tax on the converted amount that year, but then all future growth and withdrawals would be tax-free. This is often a smart move if they're in a low tax bracket at 18.