Unlike 529 plans or Coverdell accounts, Trump Accounts do not require your child to use the funds for education.
HR 1, PL 119-21, the law commonly known as the “One Big Beautiful Bill Act” introduced a brand-new, historic savings vehicle: “Trump Accounts.” At first glance, they are similar to traditional individual retirement accounts (IRAs) in many ways, but they come with special rules for beneficiaries under the age of 18. Used wisely, they can provide a powerful head start on your child’s financial future.
Free Starter Money for Newborns
As part of a pilot program, parents of U.S. citizens born between January 1, 2025, and December 31, 2028, can elect to enroll their child in a Trump Account, using new IRS Form 4547, Trump Account Election(s). Once the parent makes the election, the federal government will deposit $1,000 of free seed money into the account.
Parents may also enroll children born before 2025, up until they reach the age of 18, though these children are not eligible for the $1,000 contribution from the federal government.
Starting July 5, 2026, parents, grandparents or others may contribute up to an aggregate total of $5,000 post-tax per year in post-tax dollars (indexed for inflation beginning in 2028) until the year the child turns 18. The $1,000 government contribution does not count against this limit. To participate, your child must have a Social Security number when you enroll.
Your employer or a nonprofit organization may elect to contribute up to $2,500 per year in pre-tax dollars to the account as well. These contributions will count toward the $5,000 annual limit. These contributions are tax-free to the employee and deductible for the employer as fringe benefits.
How Trump Accounts Work
- Contributions by individuals made before the year the child reaches age 18 are not deductible, but funds inside the account grow tax deferred.
- No withdrawals are permitted until January 1 of the year the child reaches the age of 18.
- When the child reaches 18, the account automatically converts into a traditional IRA, subject to the normal rules governing IRA contributions and distributions.
- After age 18, your child must have earned income to continue contributing to the account. The account can also later be converted into a Roth IRA if desired.
- Until the child turns 18, the account can only hold specified “eligible investments”—generally mutual funds or exchange-traded funds that track the S&P 500 or another index of primarily American equities.
Conditions on Withdrawal
Individual contributions are not taxed on withdrawal, but earnings from contributions are subject to income tax. In addition, both earnings and contributions attributable to an employer, nonprofit or the government are subject to income tax upon withdrawal.
Trump Accounts convert to a traditional IRA at 18 years of age and then follow similar rules for withdrawals as traditional IRAs. Generally, withdrawals before the age of 59½ are subject to a 10 percent early withdrawal penalty. Certain enumerated exceptions to this penalty exist, including first-time home purchase, medical and disability expenses, education expenses, and birth or adoption, among others. As a result, such withdrawals are taxable as income but do not incur the early withdrawal penalty.
Why This Matters
Over time, Trump Accounts can grow into substantial savings. For example, if you contribute the maximum $5,000 annually for 17 years, plus the $1,000 government seed, and the account grows at 6 percent per year, it could be worth about $143,000 by the time your child turns 18. If left invested until your child reaches age 60, that balance could grow to over $1.7 million. Standard investment calculators can run your preferred assumptions, such as the easy-to-use Securities and Exchange Commission’s investment calculator.
Unlike 529 plans or Coverdell accounts, Trump Accounts do not require your child to use the funds for education. Unlike custodial accounts or trusts, they offer tax-deferred growth and avoid many of the “kiddie tax” pitfalls.
Opening an Account
If you would like to open a Trump Account for your child, you have three options:
- File Form 4547 with your tax return;
- File Form 4547 separately from your tax return; or
- Enroll at a later date at trumpaccounts.gov.
Regardless of which method you choose, the accounts cannot yet be finalized, and contributions do not start until July 5, 2026. In addition, many tax software providers do not yet have the ability to electronically file the Form 4547, so you may be prevented from e-filing (you can currently paper file, but that creates a host of different issues).
We anticipate that once the setup process is available to taxpayers, opening an account online will be the smoothest and most seamless option.
TAG’s Perspective
Trump Accounts may not be perfect, but with free starter money, meaningful contribution limits, potential employer or community support and decades of tax-deferred compounding, they can be a strong wealth-building tool for children. However, if you do plan to use the savings for education, 529 plans may be a better tool, as they often offer state tax benefits as well as tax-free distributions for education expenses. Each account has their own place in your savings arsenal and should be deployed carefully depending on your goals and desired outcomes.
For More Information
If you would like more information about this topic or your own unique situation, please contact John I. Frederick or Michael A. Gillen. For information about other pertinent tax topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.