The One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, includes a new savings vehicle for children called “Trump Accounts.”
What Are Trump Accounts?
Trump Accounts are custodial savings/investment accounts for U.S. children under age 18, designed to promote long-term financial security.
- After-tax contributions from parents, relatives, or others.
- Tax-deferred growth on all contributions.
- Withdrawals generally prohibited until the year the child turns 18.
- Investment option limited to a low-cost U.S. equity index fund.
Who is Eligible for Trump Accounts?
- Beginning July 2026: U.S. citizens under age 18 with a valid SSN are eligible.
- Pilot program: Children born 1/1/2025–12/31/2028 receive a $1,000 federal seed contribution; Treasury may auto-enroll eligible children.
- No income limits.
- There is no requirement that the child have any compensation in order to have a contribution made on their behalf.
- Children outside the 2025–2028 birth window can still open accounts but without the seed grant.
What are the Contribution Limits of Trump Accounts?
- From individuals: Up to $5,000 per child annually (indexed for inflation).
- From employers: Up to $2,500 annually for each employee or their dependents; excluded from employee’s income at contribution.
- From charities/government: Allowed; not counted toward the $5,000 individual limit.
- $1,000 seed grant does not count toward annual limits.
- Contributions before the age-18 year do not count toward IRA or workplace contribution limits.
What is the Income Tax Treatment of Trump Accounts?
- Parent/relative contributions: After-tax dollars; withdrawn tax-free (principal only).
- Employer, charity, government contributions, and $1,000 seed grant: Not taxable when contributed, but taxable as ordinary income upon withdrawal.
- Earnings on all contributions: Tax-deferred, then taxable as ordinary income upon withdrawal.
- Withdrawals before age 59½: 10% penalty on taxable portion unless an exception applies. Exceptions include higher education costs and up to $10,000 for a first-time home purchase.
- Distributions contain a pro-rata mix of taxable and non-taxable amounts; you cannot withdraw only the tax-free portion.
- An earlier version of the OBBBA allowed for capital gains treatment under certain circumstances, but this was deleted in the final law.
How Will Trump Accounts Be Invested?
- Default and only option: a mutual fund or ETF tracking a qualified U.S. equity index (e.g., S&P 500).
- No changes to allocation permitted.
What Unanswered Questions Need to be Addressed?
- Will the government establish a child’s first Trump Account, or can a person?
- How will a parent elect to accept the $1,000 seed contribution for eligible children?
- Will Roth conversions be allowed starting at age 18?
- Will Trump accounts be subject to the same required minimum distribution rules as other IRAs?
- Do employer contributions count towards the $5,000 annual limit?
Key Takeaway:
Trump Accounts blend features of Roth IRAs (after-tax contributions, tax-deferred growth) with IRA distribution rules. For college expenses, the 10% penalty is waived, but tax still applies to earnings and certain contributions — unlike a 529 plan, where qualified education withdrawals are entirely tax-free. Many details still need to be ironed out. The IRS should issue guidance but the unanswered questions may not be addressed until mid-2026.
Visit our OBBBA resources page dedicated to providing insights that will help you understand OBBBA’s provisions and how they may impact your finances.
