The One Big Beautiful Bill Act (OBBBA) has allowed for the creation of a new tax-deferred savings account for individuals under the age of 18 called a Trump account. These accounts will be treated in a similar manner as an IRA and are aimed to encourage saving for a child’s future.
Parents and legal guardians may open one Trump account per child up until December 31 of the year in which the child turns 17. If the U.S. Treasury determines that an eligible individual does not already have a Trump account opened for them, they shall establish an account on the child’s behalf. Parents will be given the option to opt out of the account if they choose.
Starting July 4, 2026, individuals and taxable entities may contribute after-tax dollars to a beneficiary’s Trump account. Contributions will be limited to $5,000 annually for each account, including up to $2,500 tax-free from an employer of the beneficiary or the beneficiary’s parent. Any contributions provided by tax-exempt entities, such as private foundations, will not be subject to the $5,000 annual limit. For U.S. citizens born between January 1, 2025 and December 31, 2028, the federal government will make a one-time contribution of $1,000 to every eligible Trump account to give beneficiaries a head start to their savings. After the beneficiary attains age 18, no additional contributions of any kind can be made to the Trump account.
Funds within a Trump account will only be invested in eligible ETFs or a mutual fund that tracks the return of a qualified index, does not use leverage, does not have annual fees and expenses more than 0.1% of the balance of the investment in the fund, and meets other criteria as the IRS determines appropriate. The compounding growth within these accounts could potentially help children build significant wealth over time.
Beneficiaries will not be able to take distributions from a Trump account until the first day of the calendar year in which they attain age 18. Account holders will then have access of up to 50% of funds for higher education, training programs, small business loans, or first-time home purchases. At age 25, the account holder may withdraw any amount up to the full balance for the same limited purposes. At age 30, the account holder will have access to the full balance for any purpose. Distributions taken for qualified purposes will be taxed at long-term capital gain rates, while distributions taken for any other purpose will be taxed as ordinary income.
While Trump accounts offer a new avenue for saving, families should still carefully evaluate their situation to determine the best saving strategy for their circumstances.
