New federal tax legislation passed in 2025 introduced several notable changes for families, including a new type of savings vehicle designed specifically for children: Trump Accounts. These accounts are intended to help families start building long-term savings for minors early in life, with a unique structure that blends features of education, custodial, and retirement-style accounts.
This article explains how Trump Accounts work, outlines their tax treatment and limitations, and compares them to other common savings strategies for minors so families can determine whether they fit into their broader financial plan.
What Is a Trump Account?
A Trump Account is a tax-advantaged savings account available for U.S. citizen minors. Families can contribute after-tax dollars during a defined “growth period,” which lasts until the calendar year the child turns 18. After that point, the account transitions and is treated similarly to a Traditional IRA, with standard retirement distribution rules applying.
As part of a limited pilot program, the federal government will contribute a one-time $1,000 deposit for eligible children born between 2025 and the end of 2028, provided the account is properly established.
How Contributions Work
Trump Accounts are flexible in terms of who can contribute. Parents, relatives, guardians, employers, nonprofit organizations, government entities, and even the child may contribute to the account.
Key contribution rules include:
- Annual contribution limit of $5,000 per child, regardless of household income1
- Contributions allowed only until the year the child turns 18
- Limits will be adjusted for inflation starting in 2028
- Employer contributions of up to $2,500 per employee count toward the annual cap
- Government or nonprofit contributions made for qualified groups do not count toward the $5,000 limit
- The federal pilot contribution of $1,000 does not reduce annual contribution capacity2
Tax Treatment to Know
Trump Accounts are funded primarily with after-tax dollars, meaning family contributions create tax basis that is not taxed again when withdrawn. However, account earnings are taxable when distributed.
Additional tax considerations:
- Employer contributions are deductible for the employer and not immediately taxable to the employee
- Government or nonprofit contributions are not taxable when deposited but are taxable upon withdrawal
- Withdrawals are taxed proportionally between basis and earnings
- Family contributions are subject to annual gift tax limits
Distribution Rules
During the growth period (before age 18), funds generally cannot be accessed. Limited exceptions include account rollovers, excess contribution corrections, or transfers to ABLE accounts late in the growth period.
Once the child reaches the post-growth phase, Trump Accounts follow Traditional IRA distribution rules. Early withdrawals may be subject to a 10% penalty unless an exception applies, and taxable portions are treated as ordinary income.
Investment Structure
Trump Accounts are intentionally simple from an investment standpoint. Assets are invested in a low-cost index fund focused primarily on U.S. equities, with annual expenses capped at 0.10%. This structure emphasizes broad diversification and cost efficiency.3
Additional Planning Considerations
After the Trump Account growth period (when the child reaches age 18), the account generally transitions to traditional IRA status. At that point, families may choose to convert it to a Roth IRA (which could have tax implications under the kiddie tax rules) or roll it into another traditional IRA or eligible employer plan. Trump Account contributions do not count toward standard IRA limits, so minors with earned income may still contribute to a Roth or traditional IRA separately.4
How Trump Accounts Compare to Other Savings Options
The chart below highlights key differences between Trump Accounts, 529 plans, and custodial accounts, helping illustrate how each option serves a distinct purpose depending on a family’s goals.5
Trump Accounts are not a one-size-fits-all solution. Other savings vehicles may be more appropriate depending on a family’s goals.
529 College Savings Plans
If education funding is a priority, 529 plans often provide stronger tax advantages. Qualified withdrawals for education expenses are completely tax-free, and contribution limits are significantly higher. Recent law changes also allow limited transfers from 529 plans to Roth IRAs under specific conditions.
Custodial Accounts (UTMA/UGMA)
Custodial accounts offer greater flexibility, allowing funds to be used at any time for the child’s benefit. They often allow higher contribution levels, broader investment choices, and potentially favorable tax treatment under kiddie tax rules. Unlike Trump Accounts, funds are not locked until age 18.
Getting Started
Trump Accounts will become available for funding after July 4, 2026. Families seeking to receive the federal pilot contribution for eligible newborns must proactively establish an account. Accounts can be opened through IRS Form 4547 or via the official program website once available.
Final Thoughts
Trump Accounts provide a new way for families to introduce long-term saving discipline early in a child’s life. While the government seed contribution makes them appealing, they work best when integrated thoughtfully into a broader financial strategy. Because each family’s goals and tax situation are different, professional guidance can help determine whether a Trump Account—or another savings option—is the best fit.
- Source:IRS Notice 2025-68 and U.S. Treasury guidance on Trump accounts.https://www.irs.gov/pub/irs-drop/n-25-68.pdf
- Source:IRS Notice 2025-68 and U.S. Treasury guidance on Trump accounts.https://www.irs.gov/pub/irs-drop/n-25-68.pdf
- There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)
- Source: Internal Revenue Service and U.S. Treasury guidance on Trump Accounts, including IRS Notice 2025-68. https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-trump-accounts-established-under-the-working-families-tax-cuts-notice-announces-upcoming-regulations
- Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. (19-LPL)
This information is provided for general informational purposes and is believed to be accurate as of the date shown; however, laws and government guidance may change or be clarified, which could affect the information described.
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