July 31, 2025

Trump Accounts are a new tax-advantaged savings account for children, created by the One Big Beautiful Bill Act of 2025.

Trump Accounts are a new way to save for a child’s future, combining government, employer, and personal contributions into a tax-deferred account. While not a substitute for other accounts like 529 plans or Roth IRAs, they offer an additional option for families who want to invest early on behalf of their children starting in July 2026.

The government has announced a pilot program that would provide a $1,000 federal contribution for newborns (for children born 2025-2028). For all other children under 18, parents may set up a Trump Account voluntarily to take advantage of the investment structure and tax treatment.

Who Is Eligible?

• Any child under age 18 can have a Trump Account created on their behalf.
  
  
• To qualify for the $1,000 federal seed deposit, the child must:
   
  • Be born between January 1, 2025, and December 31, 2028.
    
    
  • Be a U.S. citizen and have a Social Security number.
    
    
• A child must also be listed as a dependent on a parent's or guardian's federal tax return.
  
  
• The federal government may automatically open an account for children in the pilot group if their parents don’t do so voluntarily.
  
  

Important: Parents of children not born in the 2025–2028 window must open the account themselves. No automatic setup will occur for children outside the pilot group.

Contributions: Limits and Sources

• Parents, relatives, or friends can contribute up to $5,000 annually, using after-tax money.
  
  
• Employers can contribute up to $2,500 annually, tax-free, to the employee.
  
  
• Charities and government agencies can contribute additional funds without counting toward the $5,000 limit.
  
  
• Contributions can be made until the end of the year the child turns 17.
  
  
• Contribution limits will be adjusted for inflation starting in 2028.
  
  
• The first day accounts can receive contributions is July 4, 2026.
  
  

How to Open a Trump Account

For parents who wish to open a Trump Account, either to claim the $1,000 seed for an eligible child or to start saving for a child not in the pilot group, here’s what the process will look like:

1.  Choose a Financial Institution:

Participating banks, credit unions, and investment firms will offer Trump Account products, similar to 529 plans or IRAs.

2. Provide Eligibility Information:

You will need to provide:

• The child’s name, birthdate, and Social Security number.
  
  
• The parent/guardian’s tax information.
  
  
• Proof of U.S. citizenship for the child.
  
  

3. Elect the Federal Contribution (If Applicable):

For children born in 2025–2028, parents may request the $1,000 federal deposit when filing their federal income tax return (if it hasn't been deposited automatically).

4. Fund the Account (Optional):

Parents and others may contribute when the account is established and the program launches in July 2026.

5. Account Management:

Contributions will be automatically invested in a qualified low-cost U.S. stock index fund, as required by the law. No other investment options are available.

Investment Rules

• Funds must be invested in low-cost U.S. equity index funds or ETFs.
  
  
• Investment options must have expense ratios of 0.1% or lower.
  
  
• Other investments, such as bonds or international stocks, are not allowed.
  
  
• Accounts must remain fully invested in equities until the withdrawal phase begins.
  
  

Withdrawals: When and How They Work

There are three withdrawal phases:

Before Age 18

• No withdrawals are allowed until January 1 of the year in which the child turns 18.
  
  

Ages 18–25

• The account holder may withdraw up to 50% of the account balance (as of age 18).
  
  
• The remaining funds must stay in the account until after age 25.
  
  

Ages 25–30

• The remaining funds may now be withdrawn at any time.
  
  
• Withdrawals are still subject to tax treatment based on how the money is used.
  
  

Age 31

• Any balance left in the account is automatically treated as withdrawn and is taxed accordingly.
  
  

Note: Trump Accounts are not designed for retirement use. Funds cannot remain invested past age 30. There is no provision for penalty-free retirement withdrawals after age 59½, as there is with traditional or Roth IRAs. By law, all funds must be withdrawn (and taxed) by age 31.

Qualified Uses

Funds must be used for approved purposes to receive favorable tax treatment:

• Higher education (including college and vocational training).
  
  
• Professional certification programs.
  
  
• First-time home purchases.
  
  
• Small business expenses, if paired with a qualifying loan.
  
  

Withdrawals for these qualified uses are taxed at long-term capital gains rates. However, if used for anything else, the earnings portion is taxed as ordinary income and may incur a 10% penalty if withdrawn before age 30.

Tax Treatment Summary

• Contributions are not deductible.
  
  
• Investment earnings grow tax-deferred.
  
  
• Withdrawals:
   
  • Tax-free for the original contributions.
    
    
  • Taxable on the earnings, $1,000 seed, and employer/charity contributions.
    
    
    • Qualified uses = taxed at long-term capital gains rates.
      
      
    • Non-qualified uses = taxed at ordinary income rates + 10% penalty.
      
      

How Trump Accounts Fit into Your Financial Plan

While not a replacement for education-focused 529 plans or income-based Roth IRAs, Trump Accounts offer another tool for building long-term financial support for children. Depending on your family's financial situation and goals, they can be used alongside other savings accounts.

529 Plans First for College

If the main goal is saving for higher education, 529 college savings plans may be a better first step. These accounts offer tax-free growth and tax-free withdrawals if the money is used for qualified educational expenses like tuition, room and board, and books. Many states also offer a state income tax deduction or credit for 529 contributions, which Trump Accounts do not provide.

Funding a 529 plan first may result in greater tax advantages for families focused on college savings. Trump Accounts can still be used for college expenses, but those withdrawals are not entirely tax-free, earnings and contributions like the $1,000 seed are taxed at long-term capital gains rates, not zero.

Roth IRAs

If your child has earned income (even from your practice), a custodial Roth IRA is a strategic option. Roth IRAs allow contributions of up to $7,000 per year (in 2025), and earnings grow completely tax-free. Contributions can be withdrawn anytime without penalty, and earnings can be withdrawn tax and penalty-free for education or a first-time home purchase, after five years.

Roth IRAs may offer more flexibility and better tax treatment than Trump Accounts. For more on Roth IRAs, check out our June 2024 article, Employing Your Kids in Your Dental Practice: Roth IRAs for College.

Trump Accounts as a Supplement

Trump Accounts can be a useful supplemental savings tool once 529 and Roth IRA opportunities have been maximized. The $1,000 federal seed deposit, if applicable, is a benefit not available in other accounts. Over time, even small additional contributions can grow through compounding investment returns.

Families that want to save for broader goals, like a child’s future home or business, may appreciate that Trump Accounts cover more than just education. However, it’s important to remember that funds are locked in until age 18 and partially restricted until 25, with penalties for unqualified withdrawals.

Not sure where to start? Contact us today!

References

1. Tax Foundation. “'Trump Accounts' Could Be Better.” taxfoundation.org, June 11, 2025.
2. Tax Law Center at NYU. “Trump Accounts Serve No Clear Purpose and Would Exclude Vulnerable Children.” taxlawcenter.org, June 12, 2025.
3. Ebeling, Ashlea. “Trump Accounts for Kids Come With $1,000—and Tax Complications.” The Wall Street Journal, July 15, 2025.
4. AEI. “Beware Widespread Misinformation About the New Trump Accounts.” aei.org, July 2025.
5. Heritage Foundation. “Expanding Opportunity Through Child Savings Accounts.” heritage.org, July 18, 2025.
6. The One Big Beautiful Bill Act of 2025. congress.gov, Public Law No. 118-XXXX.
7. Tax Law Center. “Technical Assessment of Section 611: Trump Account Provisions.” law.nyu.edu, July 16, 2025.