Using a Trump Account to Start a Business

Your child turns 18 and wants to start a business. Can they use the Trump Account? Yes — but there are no special tax breaks for it. Here is what you need to know before tapping retirement funds for a startup.

No Business Exception for IRA Withdrawals

The IRS offers penalty exceptions for things like a first home, education, disability, and medical expenses. But there is no exception for starting or funding a business.

That means any withdrawal used for a business before age 59.5 faces:

• Ordinary income tax — at your child's marginal rate
• 10% early withdrawal penalty — on top of the income tax

The Real Cost: Tax + Lost Growth

The 22% immediate cost is just the beginning. Money withdrawn from an IRA stops compounding. Here is what $25,000 left invested at 8% returns could become:

• $54,000 in 10 years
• $117,000 in 20 years
• $540,000+ by age 59.5 (from age 18)

That is the true "cost" of the withdrawal — not just the taxes, but the hundreds of thousands in lost compound growth over a lifetime.

Alternative: ROBS (Rollover for Business Startups)

There is a legal strategy called ROBS — Rollover for Business Startups — that lets you use IRA funds for a business without paying taxes or penalties. Here is how it works:

1. Create a new C-corporation for your business.
2. Set up a 401(k) plan within that corporation.
3. Roll over your traditional IRA into the new 401(k).
4. The 401(k) uses the funds to buy stock in your C-corporation.
5. The corporation now has capital to fund the business.

When Withdrawal Might Make Sense

Despite the costs, sometimes withdrawing for a business is the right move. Consider it if:

• The business opportunity has strong expected returns that far exceed the 22% tax cost
• You need a small amount relative to the total account balance
• Other funding sources (loans, investors, savings) are not available
• The business will generate income quickly, allowing you to replenish retirement savings

Better Alternatives to Consider

Before tapping retirement funds, your child should explore other options:

• Small business loans — SBA loans offer favorable terms for startups
• Business credit cards — for smaller capital needs
• Angel investors or crowdfunding — bring in outside capital without personal risk
• Part-time start — build the business slowly while keeping a day job, then scale
• Grants — many programs offer free startup funding for young entrepreneurs

Each of these preserves the Trump Account's long-term growth potential.

The Bottom Line

You can use Trump Account funds for a business. There is no rule against it. But there is no tax break for it either. The 10% penalty plus income tax takes a big bite, and the lost compound growth over decades is even bigger.

If the business opportunity is truly exceptional, a partial withdrawal may be worth it. For most young adults, exploring other funding sources first — and keeping the IRA invested — is the smarter play.