As of July 4, families can put money into the new Trump accounts for children, and the marketing has been loud. If you have a teenager finishing a summer job right now, though, there’s an older account that deserves the first dollars: the custodial Roth IRA. Both can hold low-cost index funds and both can grow for decades. The difference is what happens when the money comes out, and for a kid with earned income, the Roth wins on that.
That’s not an argument against Trump accounts. They have real uses, especially for money that doesn’t come from a paycheck. But if your 16-year-old made $4,200 lifeguarding this summer, the custodial Roth IRA is where I’d start.
How a custodial Roth IRA works for a teen with a job
A Roth IRA has no minimum age. It does have one firm requirement: the child needs earned income, and the contribution can’t exceed what they earned for the year. The IRS limit for 2026 is $7,500, so a teen who earned $4,200 can put in up to $4,200. Since minors can’t open brokerage accounts in their own name, a parent opens it as custodian, and the account becomes the child’s at the age of majority in your state. Several big brokerages offer them, including Fidelity’s Roth IRA for Kids and Schwab’s custodial IRA.
The money doesn’t have to be the teen’s actual paycheck. A parent or grandparent can fund the contribution as a gift, as long as the total stays under the teen’s earnings. Some families match a teen’s savings dollar for dollar, which lets the kid keep spending money and still get the full contribution in.
The tax case is unusually strong at this age. The 2026 standard deduction for a single filer is $16,100, so a teen earning $4,200 owes no federal income tax. Payroll will still take Social Security and Medicare at 7.65%, or $321.30 on $4,200, but the income tax rate on that money is effectively zero. A Roth lets you pay tax at a zero rate now and never pay it on the growth.
What the new Trump accounts actually are
The Trump account rules come from IRS Notice 2025-68, released in December. Contributions couldn’t start until July 4, 2026, and they’re capped at $5,000 a year for 2026 from parents, relatives, and others combined. Employers can contribute up to $2,500 of that. Children born from 2025 through 2028 who are U.S. citizens with a Social Security number can get a $1,000 Treasury seed deposit that doesn’t count against the cap.
Investment choices are deliberately narrow. During what the IRS calls the growth period, the money has to sit in index funds that track mostly U.S. companies, with annual fees of 0.1% or less. That rules out expensive or exotic funds, which is a good guardrail for money a child can’t touch for years.
The key differences are access and taxes. No withdrawals are allowed during the growth period, which runs until the start of the calendar year the child turns 18. After that, the account generally follows traditional IRA rules. Contributions made by individuals create basis, so those dollars come back tax-free, but earnings are taxed as ordinary income when withdrawn, and the $1,000 seed and any employer money are fully taxable. Early withdrawals can also face the usual IRA penalties, subject to the standard exceptions.
The one big advantage Trump accounts have is that they don’t require earned income. A newborn can have one. A custodial Roth can’t be opened for a child with no job.
A worked example: $2,000 at 16, left alone for 50 years
Say your 16-year-old puts $2,000 of summer earnings into an index fund and doesn’t touch it until 66. Purely for illustration, assume a 6% average annual return. That’s a hypothetical rate, not a forecast, and real returns will vary year to year and could be lower. The SEC’s Investor.gov compound interest calculator will run the same math with whatever rate you choose.
At 6% for 50 years, $2,000 grows to $36,840.31. In a Roth IRA, a qualified withdrawal of that whole amount is tax-free.
If the same $2,000 went into a Trump account and stayed under traditional IRA rules, the $2,000 of basis would come back tax-free, but the $34,840.31 of earnings would be taxed. At an illustrative 22% tax rate, that leaves $29,175.44 after tax. The Roth comes out $7,664.87 ahead on one $2,000 contribution, and the gap gets bigger with every year of contributions.
There’s an important caveat. Once the child is an adult, a Trump account can be converted to a Roth IRA, and if they convert at 18 or 19 while their income is low, the tax on a few years of earnings might be small. A careful family can close much of the gap that way. But it takes a conversion step that has to happen on time, and the Roth doesn’t need one.
Why access matters as much as taxes
A Roth IRA has a feature most teenagers will appreciate later: contributions can be withdrawn at any time, for any reason, without tax or penalty. Only the earnings are locked up until retirement (with some exceptions). If your kid puts in $2,000 at 16 and needs it for a car or tuition at 19, the $2,000 is available. That makes a custodial Roth a reasonable home for savings even if you’re not sure the money will stay put for 50 years.
Trump account money is locked until the year the child turns 18, and after that it’s subject to IRA early-withdrawal rules. That’s fine for money you’re certain is long-term, and it’s the reason the account works well as a place for grandparents’ birthday gifts or the $1,000 seed for a baby. It’s less flexible as a teenager’s first savings account.
A simple order of operations
For a teen with a job, fund the custodial Roth IRA first, up to the lesser of their earnings or $7,500. If the family wants to save more than the teen earned, or if there’s a younger sibling with no income, the Trump account is a reasonable place for the extra money, especially since the fund fees are capped at 0.1%.
If you’re comparing account types more broadly, the earlier piece on Traditional versus Roth IRAs covers the tax trade-off in more depth, and the guide to 529 college savings plans explains the account built specifically for education costs.
A custodial Roth IRA turns a summer job into decades of tax-free growth, and it does it with money your teen can still reach in an emergency. Keep pay stubs or a simple record of the teen’s earnings in case the IRS ever asks. The rules for both accounts depend on your family’s situation, and Trump account guidance is still new, so a tax professional or licensed advisor can confirm what applies to you.
Sources: IRS Notice 2025-68 on Trump accounts; IRS, IRA contribution limits; SEC Investor.gov compound interest calculator; Jones Walker on Trump account rules
