Trump Accounts: How They Work and Who Benefits

As part of the sweeping changes by the One Big Beautiful Bill Act (OBBBA), parents have a new option to use in saving for their children’s future. The bill creates “Trump Accounts” under new IRC Sec. 530A, which functionally act like a more restrictive Individual Retirement Account (IRA). Qualifying children born between January 1, 2025, and December 31, 2028, will qualify for a one-time, $1,000 deposit to an account.  No income limitations apply. The accounts must be created by an authorized individual such as a legal guardian, parent, adult sibling or grandparent, which may have some families asking: Is it worth it to open one of these accounts? 

General Provisions 

Before opening an account, parents will need to be sure their children are “eligible individuals.” An eligible individual is someone who: 

• Is a U.S. citizen with a Social Security Number (SSN), 
• Has at least one parent with an SSN,  
• Will not reach the age of 18 in the year in which the election is made, and 
• Is not already a beneficiary of a Trump Account 

If the child meets the above requirements, the parent can make an election on Form 4547 to open an account. Additionally, the bill allows the Secretary of the Treasury to make an election to open the account for a qualified child if no election has been made. Once the election is made, the account will be created and maintained by the Treasury Department.  

Children born between January 1, 2025, and December 31, 2028, will be treated as having made a refundable tax payment of $1,000, which will be refunded via direct deposit to the Trump account. This effectively creates a one-time funding deposit for these children. 

Contributions to Trump Accounts 

Contributions are subject to an annual $5,000 limit per beneficiary and are made after tax, meaning there is no deferral of tax on the actual contributions. However, these contributions grow tax-free until distributions are made. While parents can elect to create a Trump account for their child as of January 1, 2026, no contributions can be made until July 4, 2026, at the earliest.  

Contributions must be invested in a mutual fund or exchange traded fund (ETF) with annual fees and expenses equal to or less than .1% of the total investment balance. The mutual fund or ETF must be comprised of equity investments in United States companies and must track a qualified index.

Employers are eligible to contribute to Trump Accounts for benefit of their employees’ children, up to $2,500 per employee, per year. Employer contributions will reduce the amount that the employee can contribute to the account. For instance, if an employer contributed the full $2,500 for an employee’s child, the employee would only be allowed to contribute $2,500 to their child’s account that year. Employer contributions are deductible by the employer and an excludible fringe benefit to the employee. 

Special contributions do not count against the $5,000 annual limit; particularly contributions made by certain foundations or charities under 170(c)(1) or 501(c)(3). These contributions must be made to one of the following specified class of beneficiaries: 

• All Trump Account holders, 
• All Trump Account holders born within a specific year or range of years, or 
• All Trump Account holders in a certain geographical area, provided the area has at least 5,000 Trump account holders. 

Distributions From Trump Accounts 

No distributions can be made from a Trump Account until the year in which the beneficiary reaches the age of 18. Once this happens, distributions will generally be treated the same as distributions from a traditional IRA. That is, a portion of each distribution will be taxable and nontaxable to the extent of the beneficiary’s basis. The taxable component of the distribution is taxed at ordinary income tax rates. Any distributions made before the beneficiary reaches the age of 59½ will be subject to the 10% excise tax.  

Annual Exclusion Issue 

It should be noted that there appears to be a glitch in the drafting of the Trump Accounts. When making a gift to another person, that gift will count against the gifting individual’s lifetime estate and gift tax exemption amount unless the gift either falls under a specific exclusion or is an eligible annual exclusion gift. To be an annual exclusion gift, the amount gifted must be no more than $19,000 in 2026, and the donee must have the right to the cash immediately (commonly referred to as “a present interest” in the gift).  

Other savings vehicles such as IRC Sec. 529 plans or ABLE accounts are specifically considered to be excluded from diminishing an individual’s lifetime exemption. IRC Sec. 530A does not contain similar language. As these accounts have restrictions on when the donee can access the funds, they will likely be considered a future interest gift which is not eligible as an annual exclusion gift. It remains to be seen if Congress or the IRS addresses this issue.  

Alternative Options for Children 

Trump Accounts are one tool that can be used to save for your children. The most common alternative options families use to save for their children (other than setting up trusts)are plans under IRC Sec. 529, Roth IRAs (provided the child is eligible), and custodial accounts. All options have unique positives and drawbacks. 

529 Plans 

IRC Sec. 529 created educational savings accounts, typically referred to as 529 plans. On the federal level, contributions made to these plans are not tax deductible. However, any growth is tax-free, and distributions made for qualified educational purposes are not taxed either. These plans are created and administered by each state; accordingly, the tax treatment on the state level will vary by state. Many states will allow you to deduct contributions up to a certain amount if the contributions are invested in a state-sponsored plan. Since their creation, 529 plans have gained in popularity and flexibility. Taxpayers can now use up to $20,000 annually to pay for kindergarten through 12th grade expenses. Additionally, unused funds of up to $35,000 can be rolled over into a Roth IRA, provided certain requirements are met.  

Roth IRAs 

Once a child is old enough to work, some families take advantage of Roth IRAs for their children. A child who works can contribute up to the annual maximum amount to a Roth IRA. Some families’ businesses may hire children at a younger age to allow them to earn income, which in turn allows them to fund Roth IRAs at a younger age. Generally, Roth IRAs are an excellent retirement vehicle, as distributions from these accounts are not taxed since they are funded with post-tax dollars. Like Trump Accounts, these accounts are subject to an excise tax on any distributions made before the age 59½.  

Custodial Brokerage Accounts 

An often-overlooked option for investing for your child is a custodial account. These are also referred to as “Uniform Transfers to Minors Act” (UTMA) accounts. These accounts are typically set up by a custodial adult, typically a parent, grandparent, or aunt/uncle, who controls the account on behalf of the minor child. The minor child will then take control of the account at an age set by the laws of the state in which the account is located, usually between the ages of 18-21. Custodial brokerage accounts have no contribution limits and can be qualified for the annual exclusion of up to $19,000 per year ($38,000 if married and electing to gift-split). There are also no restrictions on what vehicles you can choose to invest in. Distributions can be made at any time and can be eligible for preferential capital gains rates.  

There are some downsides to custodial accounts. Unlike Trump or retirement accounts, any realized gains, interest, and dividends are taxable in the current year. Additionally, these accounts may be taken into consideration when determining eligibility for financial aid/scholarships for education.  And finally, once the child reaches a relatively young age, the custodian loses control of the assets. 

Should You Open a Trump Account for Your Child? 

Parents with children born between 2025-2029 should consider opening a Trump account for their children, even if they don’t intend to make annual contributions, as their children will still benefit from the one-time, $1,000 deposit. Parents with children born before 2025 will want to carefully consider what option makes the most sense for their circumstances. Parents who have the financial capability to contribute to 529 plans, Roth IRAs (if eligible), custodial accounts, and Trump accounts should do so; but parents with more limited financial capabilities may be better off contributing to 529 plans for their children’s education or a custodial brokerage account for general wealth building.  

With the advent of Trump Accounts, you have more options than ever before in how to invest in your children’s future. If you have questions about which option is right for you, reach out to one of our experts below.