If you have grandchildren, you may be considering ways to contribute to their financial future. There are plenty of investment options for parents, grandparents, and even close friends to help build a nest egg for an infant. As of 2026, Trump accounts, also called 530A investment accounts, joined the many choices. But is it the best way to start building passive income for your grandchild?
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Trump Accounts, Explained In Case You Missed It
On July 4, 2026, new investment accounts for American children 17 and under rolled out by the name of 530A, or Trump accounts. Part of the One Big Beautiful Bill Act, the accounts give every American infant with a valid social security number, born after January 1, 2025 (through December 31, 2028), $1,000 in tax-free seed money.
Parents or guardians with children under the age of 17 can also start an account but won’t receive the initial $1,000. The money can’t be withdrawn until the child reaches age 18. At that point, it can be converted into an IRA or a Roth IRA, rolled into a workplace retirement plan, or kept as a Trump account.
Up to $10,000 of the money may be withdrawn by the accountholder at age 18 or older for certain qualified expenses without penalties. These include:
- Down payment for first-time homebuyers
- Certain education expenses
- Childbirth or adoption costs
- Qualifying medical expenses
- Disability or terminal illness
- New Guidance on Investments
Recent Guidance on Trump Accounts
The IRS and the US Treasury continue to roll out new guidance for these accounts, including where the money may be invested and how parents (but not grandparents) can make contributions to take advantage of matching funds from their employer.
Eligible investments, according to the IRS, must:
- Be a mutual fund or ETF that tracks the index of primarily US companies, such as the S&P 500
- Not use leverage
- Have no annual fees
- Have expenses no more than 0.1% of the investment balance
These restrictions would apply only during the growth period, which is through December 31 of the year the beneficiary turns 17.
The accounts emphasize “straightforward, low-cost” investments with low expense ratios, according to a US Treasury press release, enabling US children to keep more of the money over time. The guidance is still in the proposal stage, so regulations and requirements may change.
Related: Trump Accounts go live today; experts explain what they are
Do Employer Matching Contributions Make Trump Accounts Worthwhile?
The US Treasury and IRS are also still hammering out regulations for matching contributions from employers. Only parents or legal guardians can make pretax contributions, up to $2,500 (per employee, not per child). Employers can then match funds up to $2,500, an amount that will be adjusted annually for inflation.
Trump accounts have an overall contribution limit of $5,000 per account, which includes contributions from all sources, including matching funds, according to a document published by the Federal Register. With these limitations, there might be better ways for grandparents to help grow an investment account for their grandchildren.
For a Working Teen
Once a grandchild starts working, you can establish a custodial Roth IRA for them. Encourage them to contribute as much of their earned income as possible, but you can also make contributions. In 2026, the maximum contribution limits are $7,500 per year or their total earned income, whichever is smaller. The maximum contribution falls under the gift tax exclusion limit of $19,000 in 2026, so any contributions you make would not be subject to the gift tax.
Contributions to a Roth IRA are made after taxes, so your grandchild can withdraw the money tax-free upon retirement. Additionally, retirement accounts are not treated as assets on the FAFSA college form, so they don’t increase the student’s Student Aid Index, or how much the child and their family are expected to contribute toward college expenses.
For a Collegebound Grandchild
Roth IRAs can be a smart option if your grandchild is already earning a wage. But if they don’t have a job yet, you can start a 529 college savings plan for them. Under a new rule as of the 2024 – 2025 school year, grandparents can own a 529, pay tuition directly from the plan, and not have those distributions affect the student’s financial aid eligibility, as previously reported by Nifty 50+. You can change beneficiaries if your grandchild ends up not going to college, although they may be able to use the funds for other limited purposes, including a Roth IRA rollover of up to $35,000, according to Fidelity.com.
There’s another potential benefit to a 529, said David Leichter, CPA, CEO of Leichter Accounting Services. “Depending on the state, grandparents may receive a state deduction for contributing to the 529. The advantage for the child is that the funds contributed generally grow tax free so long as they do not pull it out.”
For Maximum Flexibility
Leichter also mentioned alternatives to retirement or college savings accounts for children and teens, including Uniform Gift to Minors Act or Uniform Transfers to Minors Act accounts.
“An UTMA or UGMA is very flexible because they do not require the child to have earned income while the Roth IRA does,” he said.
The money can be used for any purpose once the child reaches the age of majority, which may be another advantage. An UGMA holds cash and investment assets, while an UTMA can also include real estate and tangible items like art, jewelry or collectibles, according to Thrivent.com.
The downsides? These accounts are treated as taxable income and may also reduce the amount of financial aid a child can receive for college. Leichter also mentioned that grandparents can set up a brokerage account in their own name. Grandparents’ assets aren’t factored into college financial aid eligibility, so the only drawback would be that anything exceeding the gift tax exemption would be subject to gift taxes.
“They can decide to gift it to their grandkids any time they choose. There are no tax breaks on it, but it offers the ultimate flexibility,” he said.
For a Newborn
You may want to establish a 529, contribute to your grandchild’s IRA, or even consider brokerage accounts in your name or the grandchild’s name to contribute more than the $5,000 annual limit of the Trump account. But that doesn’t mean you should avoid a Trump account altogether. Children born between January 1, 2025, and December 31, 2028, would benefit the most from a Trump account thanks to the seed money.
“Either way you should definitely claim the $1,000 federal contribution if your grandchild qualifies,” Leichter said. “That $1,000 does not get included in the maximum $5,000 contribution allowed for the Trump Account.”
