Trump Account withdrawals and taxes
Money goes in after tax, grows tax-deferred, and stays put until the year the child turns 18. Then the rules of a traditional IRA take over. Here is how that works and how it compares with other options.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 9, 2026.
The timeline
| Stage | What the rules say |
|---|---|
| Opening to December 31 of the year the child turns 17 (the growth period) | Index-fund investing only. $5,000 yearly cap. No withdrawals except rollovers, excess contributions and death. |
| From January 1 of the year the child turns 18 | Treated like a traditional IRA: ordinary income tax on the taxable part; 10% additional tax before 59 and a half unless an exception applies. |
| After 18 | Regular IRA rules for contributions, rollovers, required minimum distributions and Roth conversions. It can never take SEP or SIMPLE IRA contributions. |
How a withdrawal is taxed
- Basis comes out tax-free. Money from parents, relatives and the child was taxed before it went in, so it is not taxed again.
- The rest is taxed as ordinary income. That includes the $1,000 government deposit, employer contributions, gifts from states or charities, and all the investment growth.
- The two parts come out together. Like a traditional IRA with after-tax money, each withdrawal is partly basis and partly taxable.
- Example (simplified): at 18 the account holds $10,000, of which $4,000 was contributed by parents. About 40% of a withdrawal is basis, and about 60% is taxable.
Trump Account vs other ways to save for a child
| Trump Account | 529 plan | Custodial Roth IRA | Regular custodial account (UTMA) | |
|---|---|---|---|---|
| Tax on growth | Deferred, then taxed when withdrawn | Tax-free for qualified education costs | Tax-free when qualified | Taxable each year (kiddie tax rules) |
| Yearly limit | $5,000 (plus the $1,000 seed) | No federal yearly limit; each state sets a total maximum; gifts above $19,000 per donor may need a gift tax return | Smaller of the child's earnings or $7,500 (2026) | None |
| Needs earned income? | No | No | Yes | No |
| Using the money | Not before the year the child turns 18; then IRA rules | Education; other uses taxed and penalized on earnings | Contributions any time; earnings after 59 and a half | Any purpose; the child controls it at majority |
These options are not either-or. A common plan is to claim the free $1,000, use a 529 plan for education, and open a custodial Roth IRA once the child has earned income. The best mix depends on your goals and your state's tax rules.
Common questions
When can money come out?
Not during the growth period, which ends December 31 of the year the child turns 17. Withdrawals can start on January 1 of the calendar year the child turns 18. The only exceptions earlier are a move to another Trump Account, a rollover to an ABLE account, return of excess contributions, and death.
Is a withdrawal taxed?
Generally yes, like a traditional IRA. The part that is basis (money that was already taxed, such as parents' contributions) is not taxed again. The government deposit, employer contributions and the earnings are taxed as ordinary income.
Is there a penalty for taking money out at 18?
The 10% additional tax on early IRA withdrawals can apply before age 59 and a half unless an exception applies, such as qualified higher education expenses or a first home purchase.
What happens to the account after the growth period?
It stays a Trump Account, but most special rules end. It is treated like a traditional IRA, with the usual IRA rules for withdrawals, required distributions, rollovers and Roth conversions.
Official sources
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