Among the many changes in the tax code in the last year, one of the more interesting (and confusing) is the new addition of the so-called Trump Accounts. The goal of these accounts is to provide “long-term financial security for millions of children” in America. The question, at least for now, is how exactly these accounts will do that. I dug into what we know so far about the Trump Accounts and how you can take advantage of these new accounts for your kids.
Key Takeaways
- Clarity is needed on what Trump Accounts actually are and who qualifies (including the $1,000 contribution for children born 2025–2028).
- The $5,000 annual contribution cap, the ability to fund up to $2,500 through employer contributions, and the fact that other contributions are generally not tax-deductible but grow tax-deferred need to be considered.
- Control of these accounts shifts to the child at age 18, which could lead to early withdrawals that may trigger a 10% penalty under traditional IRA rules.
- Registration is open now by filing a form, and contributions start in July 2026.
A New Account Type
As part of the One Big Beautiful Bill Act, passed on July 4th, 2025, Congress (or more so President Trump) created the new Trump Account for all children under 18 years old. This new account is very similar to a Traditional IRA, but technically is owned by the child and has an adult act as a custodian on the account. Each child can only have one Trump Account, regardless of how many family members want to contribute on their behalf.
The government created two separate groups who are eligible for these accounts. The first group is any child born between January 1st, 2025, and December 31st, 2028. These kids will receive a $1,000 contribution from the U.S. Treasury to start their account.
The second group is any child under 18 and born before 2025. These kids are still eligible for the same account; however, they will not receive the $1,000 starter contribution. I find this interesting, since my 2-year-old daughter will start her Trump Account at $0, while my soon-to-be-born son will start with $1,000.
How To Contribute
Like any savings or retirement account, the main question to answer is how to get money into and out of the account. Each Trump Account is limited to a maximum of $5,000 in contributions each year. Contributions can come from a parent, grandparent, friend, employer, etc., but altogether they cannot exceed $5,000. They do make exceptions for government or charity contributions, so the starter contributions or any future government/charity contributions do not count towards the maximum.
Generally, contributions are not tax-deductible. This means we will likely contribute to these accounts with funds from our checking, savings, and/or brokerage accounts. At the moment, it is not possible to fund the account and then deduct it on your personal tax return.
However, Trump Accounts do specify that employer contributions on behalf of an employee are allowed. Similar to how a salary can be reduced to fund a 401k, participating companies can contribute to individual Trump Accounts, up to a maximum of $2,500 per employee per year. These are pre-tax contributions, however, so business owners (or employees at a company who offer these contributions) could deposit $2,500 first from the business and the remaining $2,500 on the personal side.
Finally, similar to an IRA, these accounts do allow tax-free growth for the funds as long as they remain in the account. This means that each year, as the investments hopefully generate earnings, there is no tax consequence from year to year on those earnings.
Distribution Rules
Once the child reaches 18, they can start to take money out of the account, under certain conditions. It is worth noting that since the account is titled in their name, they assume control of the account at age 18. It is very similar to UTMA accounts; if an 18-year-old requests to distribute the entire account, they technically have every right to do so.
This is when the “account generally is treated as a traditional IRA and generally is subject to the same rules as other traditional IRAs” from the IRS kicks in. Currently, there is a 10% penalty on most IRA Distributions before age 59 1/2. However, there are some exceptions to this rule, such as for education or buying a home.
The tax consequences will be interesting as well. Since contributions will generally be made with after-tax dollars, distributions of those contributions specifically should be tax-free. Only the earnings on those contributions should be taxed at ordinary income rates. However, any pre-tax employer contributions over the years would be fully taxed at the time of distribution. So, it is not clear currently how we will keep track of which dollars are tax-free and which are not.
Perhaps most important is that at 18, we will likely need to close these Trump Accounts and transfer them into a Traditional IRA for the kid. If the kid emptied the new IRA, he would be taxed at his tax rate, not the parents. So, there may be new planning opportunities for when our kids turn 18, if they are not actively working or making any money.
How To Open A Trump Account
For now, there are two main ways to open a Trump Account for your kid. Either fill out a form and file it with your 2025 tax return, or fill out the form on Trumpaccounts.gov. No contributions are allowed into any Trump Account until at least July 5th, 2026. So, for the next few months, simply registering is all that you can do.
Ask your accountant when filing your taxes this year whether it is better to do one or the other, given your situation. It may likely be the case, since these accounts are so new, that the sooner you register, the sooner you receive the account this year. Then again, it is the government, so we do not know exactly when the accounts will start or when we will receive the $1,000 starter deposits.
More To Come
There are still a lot of questions around these accounts. Where will these accounts be held? Will advisors like me have access to these accounts? Who is choosing the investments? And others. More information will likely come out as we get closer to July, but understanding how these accounts work at least can give us context for whether they will actually be helpful tools. Next week, I am going to compare these new Trump Accounts to popular education savings accounts and see if they are worth using to save for High School and/or College. If done correctly, it seems likely that Trump Accounts can be a valuable part of education and general savings for our kids.
TC Falkner 