Trump Account vs UTMA/UGMA Custodial Account
Last verified: 2026-02-12Bottom Line
- For free money: Trump Account wins — $1,000 federal deposit + employer match
- For investment flexibility: UTMA/UGMA wins — stocks, bonds, real estate, crypto, anything
- For tax efficiency: Trump Account wins — tax-deferred growth vs kiddie tax rules
- For college aid: Trump Account likely wins — IRA treatment vs counted as student asset
- Best answer: Most families benefit from a Trump Account first, UTMA/UGMA for additional savings
UTMA (Uniform Transfer to Minors Act) and UGMA (Uniform Gift to Minors Act) custodial accounts have been the go-to way to save for kids for decades. But Trump Accounts offer some significant advantages — especially for families with newborns.
Side-by-Side Comparison
| Feature | Trump Account | UTMA/UGMA |
|---|---|---|
| Legal basis | IRC §530A (federal) | State law (varies by state) |
| Federal deposit | $1,000 (2025–2028 births) | None |
| Annual contribution limit | $5,000/year | No limit (gift tax rules apply above $19K) |
| Investment options | S&P 500 / U.S. equity index only | Almost anything: stocks, bonds, ETFs, real estate, crypto |
| Tax on growth | Tax-deferred (no tax until withdrawal) | Kiddie tax: first $1,300 free, next $1,300 at child's rate, above at parent's rate |
| Tax on withdrawals | Ordinary income tax (IRA rules at 18) | Capital gains tax (if sold at profit) |
| Employer contributions | Up to $2,500/yr tax-free (§128) | Not available |
| Withdrawals before 18 | Not allowed (locked) | Custodian can withdraw for child's benefit |
| Child gets control at | Age 18 (converts to IRA) | Age 18-21 (varies by state) |
| Use restrictions | None at 18+ (but IRA tax rules apply) | None (child's money outright) |
| Change beneficiary? | No (one account per child) | No (irrevocable gift to child) |
| FAFSA impact | TBD (IRS guidance pending) | Counted as student asset (hurts aid eligibility) |
The Tax Difference: Deferred vs Kiddie Tax
This is the biggest practical difference for most families.
Trump Account: Growth is completely tax-deferred. You pay zero tax on dividends and capital gains while the account grows. Taxes only apply when your child withdraws money (as ordinary income).
UTMA/UGMA: Subject to the "kiddie tax." The first $1,300 of unearned income (dividends, interest, capital gains) is tax-free. The next $1,300 is taxed at the child's rate. Anything above $2,600 is taxed at the parent's marginal rate — which can be as high as 37%.
✅ Why tax deferral matters over 18 years
With a UTMA, you're paying taxes on dividends and realized gains every year. With a Trump Account, all that money stays invested and compounds. Over 18 years, the difference can be thousands of dollars in additional growth — especially for families in higher tax brackets.
FAFSA Impact
UTMA/UGMA accounts are counted as student assets on the FAFSA, which reduces financial aid eligibility by up to 20% of the account value per year. This is one of the biggest downsides of custodial accounts.
Trump Accounts convert to a traditional IRA at 18. While the IRS hasn't issued specific FAFSA guidance for Trump Accounts yet, traditional IRAs are generally not counted as assets on the FAFSA — only withdrawals count as income. This could be a significant advantage.
When to Choose a Trump Account
- Newborn born 2025–2028 — claim the free $1,000
- Employer offers matching — up to $2,500/year tax-free
- Want tax-deferred growth — avoid kiddie tax complexity
- Planning for college — likely better FAFSA treatment than UTMA
- Want forced long-term savings — money is locked until 18
When to Choose a UTMA/UGMA
- Want investment flexibility — individual stocks, bonds, real estate
- May need access before 18 — custodian can withdraw for child's benefit
- Already maxing Trump Account — UTMA has no annual limit
- Want to save more than $5,000/year — no contribution cap
- Teaching kids about investing — buy individual stocks they can follow
Frequently Asked Questions
Is a Trump Account the same as a UTMA?
No. A Trump Account is a federal program under IRC §530A that converts to a traditional IRA at 18. A UTMA is a state-law custodial account where the child receives the assets outright at the age of majority.
Can I have both?
Yes. They are completely separate account types. You can fund both simultaneously.
Which is better for college savings?
Neither is ideal for college specifically — a 529 plan offers tax-free withdrawals for education. But between these two, the Trump Account likely has a better FAFSA impact since it converts to an IRA.
Trump Account vs 529 Plan
The education savings comparison
Trump Account vs Roth IRA
Traditional vs Roth tax treatment
This is educational content, not tax or financial advice. Source: IRS Notice 2025-68.