Trump Accounts, Section 530A: Why I Changed My View
As a financial advisor working with families in Northern Virginia, I've recently changed my view on Trump Accounts, also known as Section 530A accounts.
When these accounts were first introduced, I was skeptical. But as more information has become available, I now think they may be a valuable planning tool for a specific group of families.
The key is time.
Tax-advantaged Compound Interest
You may have heard that compound interest is the eighth wonder of the world. Whether Albert Einstein actually said it is debatable, but the concept is absolutely true: allowing your investment growth to earn additional growth is one of the most powerful ways to build long-term wealth.
If I were adding a ninth wonder of the world, I would call it tax-advantaged compound interest.
And that is where I think Trump Accounts could become particularly interesting options for families in Northern Virginia.
The Power of Time
Let's look at a simple example.
Imagine a family with a five-year-old child who is saving for college. College may be 13 years away.
If the family invests $5,000 today and earns an 8% annual return, that $5,000 would grow to approximately $13,598 over 13 years.
That's $8,598 of investment growth on top of the original $5,000.
That's meaningful. But 13 years is actually a relatively short period of time when we're talking about compound growth.
Now let's take the same five-year-old and look at a different goal.
Instead of using the money for college, imagine the family wants to help create long-term financial security and independence for their child.
If that same $5,000 were invested in a Section 530A account and ultimately remained invested until age 60, we're talking about 55 years of potential compound growth.
Here's where the math gets interesting.
The $5,000 generated $8,598 of growth during the first 13 years. If that $8,598 of growth could then remain invested for another 42 years at an 8% return, it would grow to more than $217,000.
And that's just the growth on the original investment's growth.
Even after adjusting these numbers for inflation, the potential is significant.
This is what has changed my view.
I don't think Trump Accounts are necessarily a better way to save for college. In fact, I still think a Virginia 529 account is likely the starting point for most Northern Virginia families who have a reasonable chance of having education expenses.
529 plans have become increasingly flexible, including broader qualified education uses and, in certain circumstances, the ability to transfer funds to a Roth IRA. Some states also offer tax deductions for contributions.
Instead, I now view the Trump Account as potentially being a very long-term retirement or financial independence asset for a child.
That is a much narrower use case—but potentially a very powerful one.
Who Should Consider a Trump Account?
The biggest drawback is also what creates the opportunity: you're locking up the money for a very long time.
Because of that, I think several things need to be in place before a family considers funding one.
First, your emergency savings should be where they need to be. You should have adequate cash reserves in high-yield, FDIC-insured accounts.
Second, your own retirement savings should be on track. I would not sacrifice your retirement security to put additional money away for your child's future.
Third, if there is a reasonable chance your child will have education expenses after high school, I would prioritize college savings first, particularly if your state provides a tax deduction for 529 contributions like Virginia, Maryland, and D.C.
Once those pieces are in place, we get into a much smaller group of families.
But for those families, I think a Trump Account becomes much more interesting.
Why Was I Initially Skeptical?
There are several reasons I was initially cautious.
1. The complexity
Generally, I think the complexity of a financial planning strategy should be proportional to the benefit it provides. This is a key principle in the GuidePoint Impact Planning process.
Trump Accounts do introduce some additional complexity because contributions made with after-tax dollars create basis that needs to be tracked.
That basis needs to be properly carried forward over the life of the account. If it isn't tracked correctly, it could create unnecessary tax consequences down the road.
That's a meaningful administrative consideration.
2. There Are Already Other Options
Families already have several ways to save for children, including 529 plans, custodial accounts, taxable brokerage accounts, and custodial IRAs when a child has earned income.
Trump Accounts aren't replacing these options. They're simply another tool—and one with a very specific purpose.
3. Limited Investment Options
The investment options are also limited at this point, primarily to a broad stock index investment.
I generally like low-cost, diversified investing, but an all-stock investment comes with significant volatility you need to keep in mind.
You have to be comfortable seeing the account decline substantially in a bad market if your contribution is ill timed.
4. Some Important Questions Remain
There are also still some unanswered questions about exactly what happens when a minor reaches age 18, particularly around the treatment of pre-tax funds and the after-tax basis.
There has been discussion about moving funds into future IRA accounts, but the details are important—and, based on my understanding, not all of them are completely clear yet.
That's an important piece of the planning equation that I want to see clarified but feel confident enough to move forward with funding.
One Planning Opportunity
If you're considering funding a Trump Account, I think there is one additional planning consideration that's easy to overlook.
Because the account is invested in stocks, there is timing risk.
If you put a large amount of money into the account and the market immediately declines, you may be tempted to stop contributing.
Instead, I would rather see someone commit to funding the account for several years.
That allows you to invest through different market environments—highs, lows, and everything in between.
In fact, I would be comfortable making a smaller initial contribution if that made it more likely that the family could continue contributing for several years.
My Takeaway
For families in Northern Virginia who have already addressed their emergency savings, retirement, and college savings goals, this is a planning opportunity worth considering.
The reason is simple:
Time + investment growth + tax advantages can be incredibly powerful.
And when you start that clock at age five rather than age 25 or 35, the potential impact of compound growth becomes very difficult to ignore.
This article is for educational purposes only and is not individualized financial, tax, or investment advice. Trump Account rules are new and additional guidance may change how these accounts work. Consult with your financial and tax professionals regarding your specific circumstances.
GuidePoint Financial Planning - A Reston Virginia Financial Advisor - Trump Accounts for Northern Virginia
Ryan Phillips, CFA, CFP® is the founder of GuidePoint Financial Planning. He is passionate about helping busy families plan, save, and invest for their financial future. Contact him today if you are interested in learning more about the benefits of working with a fee-only (no-commission) financial planner.
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All material above is for educational purposes only and is no way a recommendation to buy or sell investment securities. You should always review investment and tax changes with qualified professionals.
