Trump Accounts: Essentially an IRA for Children
The recently passed One Big Beautiful Bill Act introduces Trump Accounts, a new savings vehicle designed for children under age 18. In the bill, a “Trump Account” is defined as “…an individual retirement account as defined in Internal Revenue Code section 408(a) which is not designated as a Roth IRA.”
Who qualifies for a Trump Account?
Under the law, a child born after December 31, 2024, and before January 1, 2029, may have a Trump Account established on their behalf. Each eligible child will receive an initial $1,000 government-funded deposit. To qualify, the child need only have a Social Security number.
How does funding a Trump Account work?
Parents may contribute up to $5,000 per year. Employers, state and local governments, and private charities may also contribute up to $2,500 per year toward that $5,000 annual cap. These contributions are excluded from the parent’s taxable income, creating an additional incentive for participation.
Although the law authorizes accounts beginning January 1, 2025, no contributions may be made before July 2026, as several administrative details must first be addressed. For example, which custodians (called “trustees” in the law) will hold the accounts and how Congress will accurately fund them, to name a few.
Contributions must be invested in low-cost stock mutual funds or ETFs that mirror broad U.S. equity indexes, such as the S&P 500. Funds cannot be withdrawn before the child reaches age 18, at which point the account is treated like a traditional IRA and follows the same distribution, taxation, and penalty rules.
Children born before January 1, 2025, who are still under age 18, may also be eligible for a Trump Account with the same features—with one major exception: they will not receive the $1,000 government seed deposit.
All contributions are made with after-tax dollars, meaning those funds are not taxed again upon withdrawal. However, earnings on all contributions will be taxed as ordinary income. That said, as of this writing, the bill references the potential for those earnings to be taxed at long-term capital gains rates.
Who should fund a Trump account?
Here’s the practical issue: most families already face two massive competing financial goals—paying for college and saving for retirement. With college costs soaring, even diligent savers often struggle to fully fund tax-free 529 college savings plans. For many households, finding additional dollars to contribute to a Trump Account will be unrealistic.
In practice, this means the wealthiest families—those already on track with college and retirement funding, or financially secure grandparents—will be the primary beneficiaries of this new account’s tax-deferral opportunity.
For most families choosing between funding a 529 plan or a Trump Account, the 529 plan will remain the better choice. Education costs are near-term, unavoidable, and grow faster than inflation. And while Trump Account funds could later be used to repay student loan debt, under current law, such distributions before age 59½ will be subject to ordinary income tax and penalty. Still, taking advantage of the $1,000 federal seed contribution makes sense—that may truly be the only “free” part of the Trump Account.
