Navigating Gifting To Grandchildren in 2026: Trump Accounts, 529s vs Custodial Accounts
Episode 19
Navigating Gifting To Grandchildren in 2026: Trump Accounts, 529s vs Custodial Accounts
Published on January 21st, 2026
Episode 19 of Retirement Tax Matters explores the expanding landscape of gifting to grandchildren following the release of additional guidance on the new Trump Accounts. With the government offering a $1,000 seed deposit for children born between January 1, 2025, and December 31, 2028, many high-net-worth retirees are evaluating how this tax-deferred option fits alongside established tools. We examine the unique features of the Trump Account, including its ability to grow without an earned income requirement and the potential for strategic Roth conversions starting at age 18. We also revisit the 529 Plan, noting its continued strength for education funding and the new flexibility to rollover funds to a Roth IRA. Finally, we discuss the Custodial Account (UTMA), which offers unparalleled flexibility for pre-retirement goals like a first home or wedding, often with favorable capital gains tax treatment. Rather than declaring a single winner, we help grandparents understand how each account can be used to align their wealth with their specific values for the next generation.
Key Tax Planning Questions
Question 1: Do I get a deduction for contributing to a Trump Account?
As you read through the literature and guidance on Trump Accounts, you will notice it sounds a lot like a Traditional IRA for kids that circumvents the earned income requirement.
However, the short answer to this question is no. When you make a contribution into your grandchild's Trump Account, neither you nor your grandchild will receive a tax deduction on the return.
Your contribution is made with after-tax dollars. While those specific dollars will not be taxed again, the associated earnings will grow tax-deferred—just like a pre-tax Traditional IRA. It is important to remember that the goal of these accounts is to allow a lifetime of compound interest. By the time your grandchild reaches retirement, your original contributions should be a very small portion of the total account size, while the earnings (which have been growing tax-deferred for decades) will represent the lion's share.
Since that massive growth component will eventually be taxed as ordinary income upon withdrawal, your grandchild may be incentivized to pay attention to their tax bracket along the way. Much like we advise you today, they could make judicious Roth conversions throughout their lifetime—perhaps in their early working years when their taxable income is lower—to turn that tax-deferred growth into a tax-free legacy.
Question 2: Why open a Trump Account instead of a Roth?
For a discerning grandparent who understands the power of tax-free compounding, this is the right question to ask.
Mathematically, a Roth IRA is often the superior choice. If you contribute $5,000 the year your grandchild is born and let it grow for 60 years, it is far better for those funds to grow and be withdrawn tax-free in retirement rather than from a Trump Account, which functions like a pre-tax Traditional IRA where withdrawals are taxed as ordinary income.
However, the Custodial Roth IRA has one major restriction that prevents most grandparents from using it: Earned Income.
To contribute to a Roth IRA, the account owner (your grandchild) must have earned income, usually reported on a W-2 or tax return. Since most babies and toddlers do not have jobs, they are ineligible for a Roth IRA. In the past, this left you with only two primary options: the 529 Savings Plan (excellent for education) or a Custodial Account (UTMA) (flexible but taxable).
The Trump Account is a welcomed addition because it explicitly removes this barrier. It allows you to make a retirement-focused contribution for a child without the earned income requirement. It acts as a strategic "bridge," allowing you to get tax-deferred compound interest working immediately at birth. Later in life, when your grandchild starts working, they can potentially convert these funds to a Roth IRA to lock in that tax-free status for the future.
Question 3: We have about $5 million saved and want to start an annual gifting program for our grandkids as part of our legacy plan. We started with 529s, but we are worried about locking too much money up for education when some grandkids might choose different paths. How can we structure our giving to be fair and equitable? Should we incorporate the new Trump Accounts or Custodial Accounts into our giving plan?
As a financial planner, I have sat with many grandparents who struggle with this exact question.
The introduction of the Trump Account has actually made this conversation much easier. Instead of forcing every grandchild into the same 529 or Custodial account, we can now build a strategy that aligns with your specific values while treating every child equitably and uniquely.
Here is the framework I anticipate using with my high-net-worth clients in 2026:
For the Grandparent Valuing Education: The 529 Plan is still the heavyweight champion. The tax-free growth for tuition is unbeatable, and the recent rule allowing up to $35,000 to be rolled into a Roth IRA provides a wonderful buffer if they don't use it all for school.
For the Grandparent Valuing Flexibility: The Custodial Account (UTMA) is the unsung hero. Yes, these assets count more heavily against FAFSA financial aid calculations, but for many families in your net worth bracket, need-based aid might not be the primary driver anyway. The real value is flexibility. Unlike the other accounts, you can also watch your grandchild use this money during your lifetime for a first car, a wedding, a home down payment, or as seed-money to start their own business. Don’t overlook they can still use these funds for college or retirement if you want to!
For the Grandparent Valuing Retirement Savings:
If your grandchild has a job, the Custodial Roth IRA is usually mathematically superior because the growth and withdrawals are tax-free.
However, since most grandchildren are newborns or toddlers without earned income, the Trump Account is the game-changer. It allows you to contribute to their retirement immediately with no income requirement, starting at birth.
The Bottom Line: You no longer have to choose between fairness or strategy. You can gift the same $5,000 to every grandchild, but direct it to the specific account that matches their life stage—a Trump Account for the baby, a 529 for the student, and a Roth for the teenager. You are finally able to build a legacy that is as unique as your grandchildren are.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I’m Adam Reed, and this is Garrett Crawford, our resident CFP® professional. We are ready for the kickoff of a new year.
Garrett: Season two! Season two of Retirement Tax Matters. We had a little break here because I had to travel for a work conference in Arizona. We were going to try to kick the season off virtually, but we couldn’t find a room to record in. But here we are, season two, and I’m excited.
Adam: All the major news places like NBC and CBS called us and said they wanted to host season two. We told them we’re staying independent because we want to stay true to our followers.
Garrett: You really have to watch out for private equity and venture capital.
Adam: We’re trying to keep it grassroots and small, so we turned down all the offers. We’re back for season two and ready to rock and roll with you guys.
Garrett: Do you think we should highlight our biggest invention for season two? We have logo-sponsored coffee mugs now. We thought we’d really up our game this season.
Adam: We debated whether we should bring better content or make our backdrop look better, but we decided to just get coffee mugs. I do think we have some great content coming your way this year, though. If you tuned into our New Year’s edition, our encouragement was to follow along this year and see if you learn something from the content we’re putting out. Today is a cool episode because we’re talking about some new things on the horizon along with some old things that have been around for a while. This is really another tool in the tool belt, which is great for financial planners. However, for the do-it-yourselfers out there who understand these things just enough, it can feel like another set of rules to keep up with. I’m glad we’re here today to provide some education and clarification.
I won’t bury the lead—we’re talking about Trump accounts. Maybe you guys have heard of these. I don’t feel like it was a headline banner thing in the One Big Beautiful Bill Act, but I had a baby this year and have two kids under five, so I was locked in on the details. The idea of a Trump account was exciting for me—it's like a head start for my family. For a lot of people in that $2 million to $8 million high-net-worth realm who are older parents or younger grandparents, you’re probably thinking about how you can bless the next generation. This will be another avenue for you to explore. Garrett, why don’t you give us a rundown of the landscape and the tools in the tool belt?
Garrett: I’ll start with a 30,000-foot view. There are lots of resources on the internet, and right before we recorded this, I was refreshing my memory to make sure I had the facts right. If you want the technical details, you can search for Trump account 2026 features and you will find all the rules and regulations. We will also include some of that in the blog article we post with this. I don’t think the point of this podcast conversation is necessarily to go through every account detail, but rather to answer the question grandparents and clients are always asking: "I’ve got extra money; what is the best thing to do for my kids or grandkids?"
I’ve found that this conversation involves a natural tension. Do I give them money for now, or do I try to inspire an appreciation of compound interest and retirement saving for later? There is also the fact that if you’re in your sixties or seventies, you would love to watch your kids and grandchildren use this money while you’re still alive. While saving for their retirement is good, you also want to see the blessing of that wealth. I think we should start with the core basics of what the Trump account is. These are brand new, and since financial planning involves capitalizing on things as they come up, we’re talking about them now rather than waiting.
Adam: My understanding is that these are still somewhat in draft mode. My dad and brother are both CPAs, and at Christmas dinner, we were talking about how these 530A accounts work. His understanding is that they are being fine-tuned, and the forms are still being finalized.
Garrett: Here are the banner ideas that are important. It is a type of IRA, which means it is a retirement account prioritized to benefit those saving for retirement. It is specifically for children and minors under 18 years old. July 4, 2026, is the first date when you will actually be able to make a contribution into a Trump account. There is a $5,000 annual limit for individuals or parents, and an employer can actually contribute as well. Two unique things are that a government or a charity can also make contributions. We’re already seeing a thousand-dollar deposit for these accounts coming from the government for kids born during the specified window. We also saw news that the Dell family was going to make a huge charitable contribution, which might come out to a few hundred dollars per child. The benefit there is that anything a government or charity adds does not count toward your $5,000 individual limit.
One big thing people might miss is how the taxes work. When you put money into a 401(k) or a traditional IRA, you get a tax deduction. Trump accounts do not work that way. You still pay taxes on the money you earn and contribute, but once that money is in the account, the growth is tax-deferred. If you put $5,000 in when a baby is born, that money could have a very large amount of growth by the time they are 18, and you never pay taxes on that growth while it sits there. The child would likely be responsible for the taxes when they pull it out later in life, but the idea is that this money should grow from age one to sixty. You pay tax on the seed, but the growth is deferred until the money is pulled out. Finally, once the child turns 18, the account turns into a normal traditional IRA subject to standard rules.
The most exciting part for children is that there is no earned income requirement. My daughter is 11 and she started a dog-walking business. She charges neighbors five dollars to walk their dogs, and she turns that money around and contributes it to a Roth IRA. She can do that because she has a job and earned income. But I have an eight-year-old son who isn't walking dogs and has no interest in it yet. I can't open a Roth for him because he has no job, but I could open a Trump account for him in 2026 and make a contribution regardless of him having a job.
This is powerful because if a grandparent puts $5,000 into a Trump account and it grows to $75,000 by the time the grandchild is 18, it becomes their traditional IRA. Since most 18-year-olds or young newlyweds are in a very low tax bracket, that could be a wonderful time to do a Roth conversion. You could move that money over to a Roth, pay the tax at the child's lower rate, and then they have a massive Roth IRA that grows tax-free for the rest of their life.
Adam: It’s a great tool, and there are even life-event stipulations, like a first-time home purchase, that allow you to access the money. That leads us into the comparison with 529 plans. 529s have seen some hesitation lately because people aren't always convinced their grandkids will go to college, especially as trades are coming back. If you don't use 529 money for education, you get hit with a penalty and taxes. However, the rules have improved, and you can now move up to $35,000 from a 529 into a Roth IRA over time. For the retiree who values education above all else, the 529 is still unbeatable.
Then you have the custodial account, often called an UTMA or UGMA. I like the term "custodial" because you act as the custodian until the child reaches the age of majority. This is for the grandparent who values flexibility more than specific education or retirement goals. It doesn't have the same tax deferral as the other accounts, but it is eligible for long-term capital gains rates, which are often 0% or 15% for a child. The catch is that at 18 or 21, the child gets full control of the money. If you’re concerned about them being responsible, it might not be the best fit, but it’s a great way to fund a wedding or a house down payment.
Garrett: There have never been more options to align your wealth with your values. Whether your value is retirement, education, or empowering a child to start a business, our job is to help you align your money with those goals. 2026 is going to be a great year for having these choices.
Adam: I think for a lot of our clients, the answer will be a mix of all three. They might fund an education account, give a boost to retirement, and set aside some flexible funds for a house down payment. There aren't "bad guys" and "good guys" here—just three good tools in the tool belt. It’s a good problem to have when you’re deciding how to best bless the next generation. We’ll definitely revisit this as the details get hammered out this summer. In the meantime, subscribe to us on YouTube and check out the new website for resources like our retirement checklist. Don't let the year fly by without getting your planning in order.
Garrett: I'm Garrett Crawford.
Adam: And I'm Adam Reed. This is Retirement Tax Matters.