Trump Accounts: The Deets
Photo by Andy Feliciotti on Unsplash
There's a pretty decent chance that you may have heard something somewhere about a little thing called 'Trump Accounts.' Maybe you already know all the ins and outs of them, maybe you don't.
But if you aren't familiar with them at all, or are curious to know a little more, well it's your lucky day.
So what are Trump Accounts?
The Trump Account is a new type of investment account that was created under the One Big Beautiful Bill Act (the OBBBA) that Congress passed last year (if you'd like to read more about the OBBBA, check out a recent blog post of mine explaining the broad strokes).
At a high level, it is a new, tax-advantaged way for kids to save and invest. The main aspects include:
Up to $5,000 per year can be contributed
The funds must be invested in low-cost U.S. equity index funds
Growth in the account is tax-deferred until distribution
Supposed to go into effect in July of 2026
The requirements for opening an account include the child being 17 years old or younger and having a valid Social Security number. Only one account is allowed per child.
So there you have it. Still curious (or maybe confused...)? Let's dive deeper.
Contributions
Let's start by looking at contributions. Family members, friends, guardians, basically anyone (as well as employers, states, and organizations, all following slightly different rules), and even the kid themselves, can all make contributions. The combined total is limited to $5,000 a year.
Contributions are not tax-deductible, so there's no immediate tax benefit to putting money into the accounts.
One feature of Trump Accounts that has been widely discussed is the seed contribution of $1,000 from the federal government for certain children. To qualify, a child needs to have been born between 2025 and 2028, and an account must be opened for them.
Investment options
As mentioned above, there are limited options for investing the funds contributed to a Trump Account. Currently, the options are a short list of low-cost funds designed to follow broad U.S. stock market indexes, with expense ratios being capped at 0.10%. This means that accounts are currently only allowed to be invested entirely in equities.
Obviously this is a simpler and somewhat more confined approach than some might prefer, so diversification elsewhere for your child's broader investments may be warranted. But this simpler structure can also keep costs low and provide exposure to good long-term growth.
Tax treatment
The biggest difference between Trump Accounts and other custodial accounts (like UGMA/UTMA accounts) is that growth is tax-deferred. The money isn't taxed until it is withdrawn from the account.
Distributions are permitted once the child reaches age 18. At that point, Trump Accounts will be subject to the same distribution rules as Traditional IRAs:
Distributions taken before age 59.5 are subject to a 10% tax penalty.
Penalty-free (but not tax-free) distributions are allowed before age 59.5 for a few scenarios, such as education expenses and a first-time home purchase up to $10,000.
The distributions are taxed similarly to an "after-tax" Traditional IRA, in that the contributions are returned tax-free (for the most part), but investment gains are taxed as ordinary income.
A few additional notes
Ownership: These Trump Accounts will be owned by the child, but managed by their legal guardian until the child turns 18. As that time approaches, families should definitely take into account how the Trump Accounts, and any other educational funds (529s, Roth IRAs, custodial taxable accounts, etc.), can potentially affect financial aid calculations (some of this is unknown currently).
Opening a Trump Account: For those interested in opening an account, you can either fill out Form 4547 and send it to the IRS, or you can go to this website and fill out the requested information, which is used to fill out Form 4547: https://form.trumpaccounts.gov/
Are Trump Accounts better than other options?: This is debatable. There are clear tax advantages to these accounts: namely, the tax-free growth over decades. But there are downsides too. For example, the fact that distributions are taxed at ordinary income rates, rather than more favorable capital gains tax rates like for regular taxable accounts, isn't great. And I think they are clearly NOT as good as 529 accounts for saving for education. And if the child is working, I'd say Roth IRAs are a much better option.
To sum up
There will probably be more updates as we get closer to these accounts going live, which is supposed to happen in July of this year. But for now, you know at least the basic details and can start to consider if they might make sense for your child or a child you know.
Other more traditional routes might make more sense, such as 529 plans, custodial accounts, or Roth IRAs. But Trump Accounts provide a good opportunity for a child to start their investing journey.