A new tax-advantaged way to help children build savings for the future was created under the One Big Beautiful Bill Act (OBBBA): Trump Accounts (TAs). Under a pilot program, parents can elect to establish a TA for a U.S. citizen child born between 2025 and 2028, and the federal government will contribute $1,000 to jump-start the account. Older children are also eligible to open a TA—as long as they have a valid Social Security number and are under age 18 at the end of the tax year—but they do not qualify for the $1,000 government contribution.
Getting started
One way to establish a TA is by filing Form 4547, “Trump Account Election(s),” with your 2025 federal income tax return. However, the form does not have to be submitted with a tax return; it may also be filed at any time through an online portal expected to become available this summer.
Beginning July 3, 2026, you—and other individuals, such as grandparents—may make annual contributions to the TA, subject to a combined limit of $5,000 per year (indexed for inflation starting in 2028). Contributions can be made each year until the year the child turns 18.
The $1,000 federal seed contribution does not count toward the annual limit. For example, if your child is born this year, up to $5,000 may be contributed to the TA in 2026 in addition to the $1,000 government contribution.
Other contributions
Employers may establish a TA contribution program. Beginning July 3, 2026, an employer may contribute—and deduct—up to $2,500 per year (indexed for inflation starting in 2028) to a TA for an eligible employee under age 18 or for an employee’s eligible dependent who is under age 18. However, total employer contributions are capped at $2,500 per employee, even if the employee has more than one eligible dependent. These employer contributions count toward the overall $5,000 annual contribution limit. Amounts contributed by an employer are excluded from the employee’s taxable income.
State, local, and tribal governments, as well as tax-exempt organizations described in Section 501(c)(3) of the Internal Revenue Code, may also make tax-free contributions to TAs, subject to rules to be issued by the IRS. These “qualified general contributions” are not subject to the $5,000 annual contribution limit. However, they must be made available to all children within a defined qualified group, as specified under applicable guidance.
Tax treatment and other requirements
Contributions to a TA are not deductible for individual contributors. However, earnings grow on a tax-deferred basis while the funds remain in the account. In general, no distributions may be taken before the year the child turns 18.
Until the year the child turns 18, TA assets may be invested only in certain eligible investments. These include mutual funds or exchange-traded funds (ETFs) that: (1) track a qualified index, (2) do not use leverage, (3) charge annual fees of no more than 0.1% of the account balance, and (4) satisfy any additional requirements that may be established by the IRS.
After age 18
In the year your child turns 18, the TA will convert to a traditional IRA and become subject to the federal income tax rules that apply to traditional IRAs.
At that point, your child must have earned income to make additional contributions. If eligible, those contributions may be deductible, and the higher annual IRA contribution limit will apply.
Beginning in the year your child turns 18, distributions may also be taken. However, withdrawals will generally be at least partially taxable, and the 10% early withdrawal penalty may apply unless an exception is available. For that reason, it is typically best to leave the funds in the account so they can continue to grow on a tax-deferred basis.
Your options
If your child qualifies for the $1,000 government contribution, you’ll want to establish a TA at a minimum to capture this “free” seed money and benefit from the potential for tax-deferred growth. The account can become an even more powerful savings tool if you also make annual contributions.
For example, assume you contribute $5,000 per year to your child’s TA for the first 17 years of life, after receiving the $1,000 government contribution in Year 1. If the account earns an average annual return of 5%, it would grow to approximately $138,000 by the time your child turns 18. If the funds then remain invested—after the account converts to a traditional IRA—and continue earning 5% annually until age 65, the balance would grow to nearly $1.44 million. Once your child has earned income, he or she could also make additional IRA contributions, potentially increasing the retirement balance even further.
That said, before making TA contributions, consider whether other tax-advantaged savings vehicles might better align with your goals. For instance, if your primary objective is to fund your child’s education, a Section 529 college savings plan may be more appropriate. Qualified education expenses paid from a 529 plan are tax-free, and under current rules, some or all of any remaining balance may eventually be rolled over to a Roth IRA, allowing for tax-free distributions in retirement.
To learn more
Trump Accounts (TAs) are worth considering—particularly if you’re in a position to make meaningful annual contributions and take full advantage of the long-term tax-deferred growth potential.
If you have questions about TAs or would like more information about other tax-advantaged strategies to benefit your children—or grandchildren—please contact us to discuss your options.
