Trump accounts are here, and they've started with a bang.

This year parents and others have signed up for more than seven million of these new, tax-favored savings accounts for children, according to the Treasury Department. The accounts have taken in about $1.5 billion, with part of that coming from Uncle Sam's gifts of $1,000 for each child born from 2025 through 2028.

Now, the guardians of these children face a choice: Should they contribute to Trump accounts beyond the free money provided by the government, charities and employers? Individuals can put in up to $5,000 a year per child for young people until the year they turn 18, and the Trump account app urges savers to make additions.

For wealthy people seeking every tax-favored way to save, the answer will often be yes. The decision is trickier for parents who need to save for themselves as well as their children, because they have to allocate dollars among IRAs, 401(k)s, 529 education-savings plans, Health Savings Accounts and Trump accounts.

At the same time, Trump accounts are unique. They're a great way to get savings into a fully tax-deferred vehicle for youngsters who lack earned income -- and that's most of them. So adding to a Trump account could make sense if you want to provide a young person with an extra decade or two of savings growth.

Craig Nofziger, a CPA practicing near Indianapolis, knows this dilemma. He's the father of a son born in April 2025 and a daughter born in June 2026. So each child is getting a Trump account with a $1,000 payment.

Will he add more? Yes, but after stoking 529 education savings plans first. That's because 529s work better than Trump accounts for college, and Indiana has a tax credit up to $1,500 for them.

This leaves less for the Trump accounts -- but not nothing. "Even if our contributions are small, the accounts can be converted to Roth IRAs later. And they're a great teaching tool to show the growth of money over time," says Nofziger.

For parents and others grappling with these decisions, here's more to know.

The basics

Each child's Trump account can receive contributions up to $5,000 a year in addition to contributions by governments and certain charities. The $5,000 cap typically applies to funds added by individuals and employers.

For now, account funds are invested in the State Street SPDR S&P 500 ETF, and at some point, investors will be allowed access to four other low-fee index funds. Currently Trump accounts are managed by the Bank of New York Mellon and Robinhood Markets, but in the future they'll be transferable to other custodians.

Once contributions are made, the funds are usually locked up until the year the child turns 18. Then account ownership transfers to the child and is subject to rules for traditional IRAs. Among other things, withdrawals before age 59 1/2 typically incur tax and a 10% penalty, and payouts will be taxed at ordinary income rates.

But the owner can also convert the Trump account into a Roth IRA, paying taxes due on the conversion. These will often be low for young people if there's no kiddie tax (see below). The owner can withdraw converted amounts (but not earnings) without owing tax or a 10% penalty after five years.

Consider behavior risk

You read that right: The child owns the Trump account as of Jan. 1 the year he or she turns 18. If the child empties the account to buy a fast car, that's allowed -- although taxes and a 10% penalty will likely be due. Remember this when deciding whether to add funds.

Compare Trump accounts with 529 plans

Under current law, 529 education-savings accounts are often better than Trump accounts for families saving for college or vocational training. Although 529 contributions don't get a federal tax break, states often give deductions or credits.

Like funds in Trump accounts, funds in 529 plans grow tax-deferred. Unlike Trump funds, they can be withdrawn tax-free for eligible expenses such as tuition, books and room and board. Up to $35,000 of 529 funds can be rolled over into a Roth IRA.

By contrast, withdrawals from Trump accounts for college expenses are often taxable, although there's no 10% penalty.

Be prepared to track basis

Contributions to Trump accounts by governments, certain charities and employers will be in pretax dollars. However, funds contributed by individuals will often be in after-tax dollars. This will complicate taxes on withdrawals because payouts of the after-tax funds aren't taxable and must be prorated.

Here's a simplified example from Eric Bronnenkant, head of tax at Edelman Financial Engines. By the time Johnny is 18, his Trump account has grown to $160,000. About $90,000 is from the government, employers and account earnings; $70,000 is from contributions by Johnny's parents and grandparents.

When Johnny withdraws funds, each payout will need to include a tax-free piece of the $70,000. Custodians will keep records of pretax and after-tax contributions to Trump accounts on IRS Form 5498-TA. If the records are lost or contain errors, which happens, the owner could pay tax twice on after-tax contributions.

Avoid kiddie tax on Roth conversions

Some parents are adding to Trump accounts for teenagers now in order to convert the accounts to Roth IRAs in the year the child turns 18.

Be careful here: The conversion amount will be partly or fully taxable. If the taxable amount exceeds a threshold (currently $2,700), the amount above it will be taxable at the parents' rate because of the kiddie tax.

One way to avoid kiddie tax is to do conversions gradually. Another is to wait until the owner is 24. Bronnenkant adds that if the owner has an employer with a traditional 401(k) that accepts rollovers, the Trump account pretax funds could be rolled into the traditional 401(k) and the after-tax funds into a Roth IRA. Both transfers would be tax-free, and this strategy should reduce complexity.