Trump Accounts and the Halal Question: A Straight Look

If you have young kids, three people have probably forwarded you the same headline this week. The government’s new “Trump Accounts” went live, more than six million are already open, and every Muslim parent is asking the same thing: is this halal, and should I bother?

Here is my honest take.

What’s actually happening

A Trump Account is basically baby’s first IRA. Kids born between 2025 and 2028 get a free $1,000 from the Treasury to start things off. After that, you, family, whoever, can add up to $5,000 a year between you.

And here is the first thing families get wrong: this is a retirement head start, not a college fund. It is built to work like a traditional IRA for a child, aimed at long-term savings decades away. If your goal is tuition, this is the wrong tool. A 529 is the one designed for that job.

So far so good. Free money for your kid. What’s not to like?

Before you get excited, the money is locked

This one surprises people. Until your child turns 18, you cannot take the money out. Not for school, not for a car, not for an emergency. The only exception is the death of the child. The cash goes in, it stays invested in the mandated fund, and it is frozen until 18. After that it converts to a traditional IRA and follows IRA rules, which means earnings pulled before age 59 and a half usually carry a 10 percent penalty on top of tax, unless an exception applies.

So treat anything you put in as money you will not see again for a very long time.

Here’s the catch for us

This is the bit nobody is telling you. By law, that money can only sit in a broad U.S. stock index fund. There’s no self-directed option — and as things stand, every fund Treasury has approved is an unscreened broad-market index, with no screened option among them. And a plain S&P 500 fund is full of conventional banks, insurers, riba, and companies that would never pass an AAOIFI screen.

The account itself is neutral, like any IRA. It is what sits inside that is the problem. And before anyone says just purify it: purification is meant for the small, incidental haram income inside an otherwise clean portfolio. It was never meant to clean up a fund that is stuffed with banks from day one. So as things stand today, what the Trump Account has to hold is not AAOIFI-compliant. Full stop.

Does that make it haram to open one? Honestly, scholars do not all agree, and I am not going to pretend they do. Some are comfortable taking the one-off $1,000, letting it grow, purifying the impermissible portion, and moving it into a proper halal IRA the moment it converts at 18. Others will not touch an unscreened fund at all. That is a conversation for you and your scholar, not something I am going to rule on from a newsletter. My job is to make sure you actually understand what you are signing up for.

The tax bit (stick with me)

Quick, because it matters. You put money in with after-tax dollars, so there is no federal or state deduction on the way in. The trade-off is that the growth is tax-deferred. When the money eventually comes out, your own family contributions come back tax-free, since you already paid tax on them, but the $1,000 seed, any employer money, and all the growth get taxed as ordinary income.

One upside: because your contributions build an after-tax basis, converting to a Roth later may be efficient depending on your situation. Worth planning early rather than tripping over it at 18. Please consult your tax advisor.

One more thing: donating stock

Treasury also confirmed this week that it will accept large stock donations from philanthropists to fund children’s accounts — the shares are then sold and invested in the mandated fund. Good reminder of something that applies to your own giving. If you are holding stock that has gone up, donate the shares directly instead of selling first.

You may avoid capital gains tax on the growth, and if you itemize, you can usually deduct the full market value. Say the word, and I will set up a simple stock-giving process before year’s end.

So what should you do?

If your child qualifies and your scholar is comfortable, the $1,000 may be a head start, and the account can be opened in minutes. Just go in with your eyes open: this is locked-up retirement money, not college money, the growth is tax-deferred rather than tax-free, and the account cannot hold anything screened today.

Let us make sure the rest of your kids’ savings sits on ground you are actually happy with.

• U.S. Department of the Treasury — program overview, investment lineup, and philanthropic stock-contribution announcements (home.treasury.gov)
• IRS — Notice 2025-68 and guidance on Trump Accounts under the Working Families Tax Cuts (irs.gov)
• Congressional Research Service — “Trump Accounts: Overview and Policy Considerations,” Report R48910 (congress.gov)
• Internal Revenue Code § 530A

Kashif Osman
kashif.osman@crescentpw.com
(919) 439-6041
Crescent Private Wealth
Wealth Advisor
http://www.crescentpw.com

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