Custodial accounts have been the go-to way to invest money for your kids for decades. Now there's a new option: the Trump Account, officially called an Invest America Account.
They're both ways to put money in your child's name. But they work very differently.
What Is a Custodial Account?
A custodial account (usually a UGMA or UTMA account) is a regular taxable investment account that a parent or guardian manages on behalf of a child. You can invest in stocks, ETFs, mutual funds, whatever you want.
When your child reaches the legal age of majority (18 or 21, depending on your state), the account transfers to them completely and unconditionally. No restrictions on what they can do with the money.
The tradeoff: you pay taxes on dividends and capital gains every year as they happen.
What Is a Trump Account?
A Trump Account is a new government program, part of the One Big Beautiful Bill Act, that creates a tax-advantaged investment account for every American child under 18. The government seeds eligible accounts with $1,000 at birth, and families can contribute up to $5,000 per year on top of that.
The money is invested in low-cost S&P 500 index funds, managed by the U.S. Treasury until your child turns 18. At that point, it converts to a traditional IRA.
The Key Differences
Tax treatment. Custodial accounts are taxable every year. Trump Accounts are tax-deferred, meaning you don't pay taxes on growth until withdrawal. That's a significant advantage when you're compounding over 18 years.
Investment control. With a custodial account, you choose your investments. With a Trump Account, the money is invested in government-selected S&P 500 index funds. You don't pick the holdings.
Withdrawal rules. Custodial accounts transfer to your child at 18 or 21 with no restrictions. Trump Accounts convert to a traditional IRA at 18, which means there are rules around withdrawals. Early distributions before 59½ come with taxes and a potential 10% penalty (with some exceptions like first home or education).
The free $1,000. Custodial accounts don't come with government money. If your child was born between 2025 and 2028, a Trump Account does. That's a meaningful head start that a custodial account simply can't match.
Which One Is More Flexible?
Custodial accounts give you more flexibility. You can invest in anything, withdraw anytime (your child just takes full control at majority), and there are no contribution limits.
Trump Accounts are more structured. But that structure comes with tax advantages and, for qualifying kids, free government money. See how much your child could receive over time.
Can You Have Both?
Yes. Nothing stops you from opening a custodial account and a Trump Account for the same child. Some families will use a Trump Account as the long-term wealth builder and a custodial account for more flexible, shorter-term savings goals.
If your child qualifies for the $1,000 government seed, opening a Trump Account is a no-brainer first step. You can always open a custodial account alongside it.
What About the April 15 Deadline?
Children born in 2025 through 2028 need IRS Form 4547 filed with the 2025 tax return by April 15, 2026 to claim the $1,000 seed. The account opens in July 2026.
For a full breakdown of how to open a Trump Account, we've got a step-by-step guide.
Find out in 30 seconds if your child qualifies at investamericaquiz.com.
Want to keep comparing? Here's every question people are asking about Trump Accounts.
This post is for educational purposes only and is not tax, legal, or investment advice. Grifin is not affiliated with the U.S. government or the Invest America program.
