New §530A Children’s Accounts What Colorado Families and Their Advisors Need to Know

A new children’s savings vehicle—created by Congress in July 2025 and codified at Internal Revenue Code §530A—is set to launch on July 4, 2026. Colloquially dubbed “Trump Accounts,” these custodial accounts pair low-cost, index-based investing with favorable tax treatment and, for certain newborns, a federal seed deposit. If you advise families or you are planning for your own children, this program will soon sit alongside 529 plans, Coverdell ESAs, UTMA/UGMA custodial accounts, and trusts. Understanding how §530A fits into a Colorado estate plan now will help you deploy it effectively next summer.

The Core Design in Plain Terms

A §530A account is an IRA-style custodial account for a child under age 18 who has a Social Security number. Contributions can be made by parents, relatives, the child, and—crucially—employers. Earnings accumulate tax free, with investment menus limited to low-fee index mutual funds and ETFs. Total annual fund expenses are capped at 0.10 percent of assets. Distributions are tightly restricted before age 18, and early withdrawals after 18 generally trigger a 10 percent penalty unless they meet specified exceptions, notably certain education and first-home costs.

For U.S.-citizen babies born between January 1, 2025 and December 31, 2028, Treasury will deposit a one-time $1,000 “seed” into a §530A account as part of a pilot intended to jump-start long-term compounding.

Annual Limits and the Employer Angle

Two caps matter:

• Total contributions to a child’s account are $5,000 per year, indexed for inflation after 2027.
• Employer contributions up to $2,500 may be made tax free to the employee, starting July 2026, if the employer follows program rules (written plan, employee notices, and nondiscrimination standards similar to dependent care assistance programs).

The employer exclusion rides on a new Code provision and, notably, these programs are not ERISA plans, reducing compliance complexity compared with retirement benefits—though employers still must satisfy nondiscrimination and communication duties. Expect additional Treasury guidance on open questions, for example, coordination where an employee has multiple eligible children.

How §530A Compares to Existing Tools

• 529 plans remain the heavy lifter for education. 529s allow much larger contributions, tax-free earnings, and penalty-free withdrawals for qualified education, with growing flexibility for limited Roth rollovers. §530A is narrower but adds an employer-funded path and a universal newborn seed for eligible births. Nothing prevents a family from using both.
• Coverdell ESAs (Code §530) can also fund K-12. Their low annual cap and income phase-outs have constrained usage; §530A’s employer contribution feature and potential seed grant may make it more attractive for very young children.
• UTMA/UGMA custodial accounts are simple but tax-inefficient as balances grow and provide no employer funding or federal seed. §530A adds tax-free buildup with fee discipline and guardrails around early use.
• Trusts—for example, a Colorado revocable trust holding a sub-trust for minors—offer unmatched control and creditor protection but involve drafting and administration costs. §530A can complement trust design by building a low-friction, tax-favored “first dollars” bucket for education and launching-into-life expenses. Many families will pair trust distributions with employer-funded §530A contributions to diversify sources.

Investment and Fee Discipline Baked Into the Statute

One of the most distinctive features is the statutory insistence on index-tracking funds with ultra-low expense ratios—a guardrail rarely seen in the Code. That design aims to maximize the compounding benefit of the seed deposit and family contributions. Providers are expected to offer menus anchored to broad indices such as total U.S. equity, S&P 500, and total bond funds. For practitioners, this reduces the due-diligence burden around fund selection while imposing operational constraints on custodians.

Access Rules and Penalties

Before age 18, withdrawals are tightly limited (think rollovers and corrections). After 18 and before 59½, a 10 percent penalty generally applies, with statutory exceptions for qualified education and first-home costs. After 59½, the account behaves much like an IRA. In addition, at age 18 the child must have taxable earned income to continue making new contributions, mirroring IRA logic. For planners, those rules point to §530A as a pre-college accumulation vehicle with carefully defined “on-ramps” for education and home formation.

Administration and Compliance for Employers

If you sponsor benefits, mark your calendar for July 2026. To exclude employer contributions from employees’ income, you will need a written program, employee notices, and nondiscrimination practices analogous to dependent care rules. These programs are voluntary and outside ERISA, but payroll, HRIS, and TPA coordination will be essential. Employers should also plan for practical controls: child-level contribution caps, mid-year job changes, and attestation processes when an employee has multiple eligible children.

Estate Planning Implications for Colorado Families

From a planning lens, §530A is best understood as a narrow, high-efficiency sleeve inside a broader family strategy:

• Guardianship and Incapacity. Because the child is the account owner and the account is custodial before majority, ensure your Colorado wills and parental nominations of guardian designate a trusted adult to interact with the custodian and, later, to counsel the child as they reach 18. The account itself should not pass through probate if properly titled, but the identity and cooperation of the custodian matter.
• Trust Coordination. If your revocable trust includes education and health standards for minors, map those standards to the permitted §530A distribution categories. A trustee might preserve §530A assets for penalty-free uses and satisfy other needs from the trust, or the reverse, depending on investment performance and timing.
• Funding Sequence. For babies eligible for the $1,000 seed, open the §530A as early as the custodian allows to capture maximum compounding. For older children, consider annual “stacking”: fund the §530A up to the family’s target (and capture any employer contribution), then 529 for larger education needs, then UTMA or trust for flexible spending.
• Creditor and Divorce Exposure. §530A accounts do not replace the asset-protection envelope you can build with properly drafted trusts. If shielding family capital from future claims is a priority, use §530A for narrow, statutory purposes and continue to rely on trust structures (and, where appropriate, Wyoming entities) for wealth preservation.

Practical Questions We Are Fielding (and What We Know)

• Can there be more than one account per child? No—there is one account per child, with limited rollovers (including to an ABLE account) permitted.
• What if a parent changes jobs mid-year? Expect aggregate caps to apply at the child level. Employers will need certification or attestation processes to avoid overfunding. Treasury guidance should address coordination mechanics.
• How are the funds invested at launch? Only index-tracking mutual funds and ETFs under the 0.10 percent fee ceiling. Target-date index options may emerge if they meet the cap.
• Will employers actually use this? Early indications suggest many will, particularly large tech and professional-services firms eager to add family-friendly benefits without ERISA complexity.

Action Steps for Clients and Counsel Before July 2026

• Inventory your current children’s accounts (529, UTMA, trusts) and model how a $5,000 annual §530A layer—plus any employer dollars—changes your education and first-home funding plan.
• Coordinate with HR if an employer contribution is available; ask about plan documents, nondiscrimination testing, and enrollment timing.
• Draft or update powers of attorney for minors where appropriate and confirm your Colorado guardianship nominations so a responsible adult can manage the account if needed.
• Calibrate your trust distribution standards and beneficiary education language to align with §530A’s permitted uses.

Braverman Law Group is already integrating §530A into Colorado estate plans—alongside 529s, trusts, and, when appropriate, Wyoming entities—to balance tax efficiency with the control families expect. If you would like a tailored roadmap for your children or your clients, we are here to help. Give us a call at (303) 800-1588 to schedule a free consultation today.

Note: This summary reflects the statute and agency commentary available as of September 2025; Treasury and IRS guidance may refine several points before the July 2026 launch.