As part of the One Big Beautiful Bill Act, President Donald J. Trump has introduced a new provision known as “Trump Accounts.” These accounts are designed to give American children a financial head start from the moment they are born. Any child who has U.S. citizenship, a social security number, and is under the age of 18 is eligible for a Trump Account.
Key Takeaways:
Many parties may contribute to these accounts throughout the year, but for qualifying children born during the pilot program, the government will fund the accounts with an initial contribution of $1,000.
These are tax-deferred investment accounts.
Many changes take place once a beneficiary reaches age 18.
Read on to understand the contribution limits, the tax benefits associated with these accounts, and what changes after a child turns 18.
Eligibility and Contributions
A Trump Account will be established by the IRS if one has not already been opened by the time the child is first claimed as a qualifying dependent on a tax return. Parents have the option to opt out of the account if they choose to do so. Contributions to these accounts cannot be made before July 4, 2026, and are subject to certain limits based on the contributing party.
To make the most of this opportunity, consider contributing up to the $5,000 annual limit (including any employer contributions) before your child turns 18, as these funds can grow tax deferred. Additionally, explore whether your employer or local organizations offer additional contributions, since government and nonprofit contributions are unlimited and can significantly boost your child’s financial future.
Tax Deferred Investment Accounts
These new accounts will be tax-deferred investment accounts, meaning the funds grow tax-deferred, but when you take money out, it’s taxed at regular income rates. As with most tax-deferred accounts, there are penalties for early withdrawals; however, exceptions will likely apply, as these accounts will follow IRA rules once a beneficiary turns 18.
- Assuming these accounts will follow IRA rules, some exceptions to early withdrawals after age 18 would be:
- Education
- Disability
- Domestic abuse
- Disaster recovery
- First-time homebuyer
- Starting a family through birth or adoption
- Accounts must be invested in low-cost index funds tracking U.S. equities (like the S&P 500).
When planning for your child’s future, it is wise to explore other savings vehicles for education and retirement savings, such as 529 plans and IRAs, as they could offer more favorable tax benefits compared to Trump Accounts in these areas.
Changes to Accounts Once Beneficiary Reaches Age 18
Many changes take place for these accounts once the beneficiary reaches the age of 18. While we are still waiting for guidance on some of the changes, we can presume the rules of a traditional IRA will likely be followed since the law states these new accounts are generally treated as IRAs under Section 408(a) unless otherwise specified. Here are some notable changes that will occur:
- Accounts will be a mix of after-tax and pre-tax dollars providing some basis for distributions.
- Distributions are allowed after age 18 but are subject to early withdrawal penalties with the exceptions listed in the above section. Presumably, owners will have to wait until age 59 ½ to take a penalty free distribution.
- The investment requirements will no longer apply, and beneficiaries can invest their funds any way allowed within an IRA.
- Trump accounts will not be subject to the IRA aggregation rules.
To navigate the changes to their Trump Account wisely, help your child track the mix of pre-tax and after-tax contributions for accurate tax reporting. Individuals should also consider delaying withdrawals until age 59½ to avoid penalties, unless there is a qualifying exception they want to use the funds for.
Proactively Plan for Your Child’s Future
Trump Accounts present a valuable opportunity for early investment. By investing right away, a child can benefit from the power of compounding growth, helping build a strong financial foundation for the future. To ensure the account grows effectively and aligns with long-term goals, it’s important to review IRA strategies and consult with your financial advisor.
Contact our team today if you would like to speak to a tax professional regarding the Trump accounts and whether this tax deferred savings tool is beneficial for your family.
