Trump Accounts will debut next year. "You're basically setting up an IRA for your kid," one expert says.
When the One Big Beautiful Bill Act was signed into law earlier this year, Trump Accounts were one provision that likely piqued the interest of parents. With the promise of a $1,000 initial deposit from the government, the accounts offer a new avenue to save for a child's future needs.
"A free deposit of $1,000 from the federal government doesn't come along every day," says Lisa A. Cummings, attorney and executive vice president at Cummings & Cummings Law, which serves clients in Texas, Oklahoma and Florida.
However, only certain newborns will qualify for the $1,000 deposit, and the details of the accounts themselves have yet to be ironed out. "A lot of information is up in the air," Cummings says.
Although Trump Accounts can't be opened before July 4, 2026, per the provisions of the legislation, here's what parents can expect from this new savings option.
What Is a Trump Account?
Initially called MAGA Accounts in an early version of the OBBB, the White House website describes Trump Accounts as "tax-advantaged savings accounts to secure financial futures for every American child from birth."
"It's almost like a retirement account for kids," says Evan Morgan, principal in the tax advisory services department of Kaufman Rossin.
For each eligible child born from Jan. 1, 2025, to Dec. 31, 2028, the government will deposit $1,000 into their account. Eligible children are defined as those who are U.S. citizens.
"Essentially, the idea is that $1,000 is seed money to newborns," says Lauren Genuardi, chief operating officer and managing partner for Expressive Wealth in Chicago.
Then, parents and others can contribute up to a combined $5,000 each year to the account. There is no tax deduction for these contributions, but the money will grow tax-deferred. Funds can't be withdrawn until the child turns 18.
Once a child reaches 18, distributions are treated the same as those from a traditional retirement account. That means they will be subject to regular income tax. Assuming they follow the same rules as other traditional retirement accounts, withdrawals before age 59 1/2 could also be subject to a 10% tax penalty, Morgan notes.
Who Can Contribute to a Trump Account?
Parents, along with family and friends, can make annual contributions of up to $5,000 for each child. There is mention of additional contributions that can be made to a "qualified class of account beneficiaries" by a state, Native American tribal government or 501(c)(3) organization. It remains to be seen what those contributions might entail, according to Morgan.
"The bill also includes the prospect that employers may be able to contribute as well," Cummings says. Employer contributions will be capped at $2,500 per year to start, and those contributions do not apply toward a worker's gross income. However, they do apply toward the $5,000 annual limit.
While contributions from individuals are not tax-deductible, "I would assume that $2,500 would be deductible to employers," Morgan says.
After 2027, both the employer contribution and total contribution limits for Trump Accounts will be adjusted annually for inflation.
How Much Money Will a Trump Account Earn?
The $1,000 seed money alone may not add up to much by the time a child is 18. Assuming a 10% average annual rate of return, that cash could grow to about $5,600 when invested for 18 years. If average returns are only 6% per year, then the balance would be less than $3,000 after 18 years.
However, if parents and employers make contributions, the balance could be significantly more. A $1,000 annual deposit for a newborn could grow to more than $30,000 by age 18, assuming a 6% annual rate of return. If parents max out the contributions and add $5,000 each year, using the same rate of return, that would provide a child with more than $150,000 at age 18 – "A great 18th birthday present," Cummings says.
These are just examples, though, and how much money a Trump Account earns depends on how much cash is deposited and where it is invested. The law stipulates that funds can only be placed in certain index funds.
"It would be something with broad U.S. exposure and a low fee," Genuardi says.
While some have interpreted the OBBB to mean that all Trump Accounts will be invested in the same index fund, others say parents could be given a choice of where to place their child's money.
"It's too early to speculate on who's going to be administering this," according to Cummings.
How Can Money in a Trump Account Be Used?
Once a child turns 18, they can access money in their account for any reason, such as buying a house, starting a business or pursuing higher education. Genuardi says that flexibility makes the Trump Account different from a 529 plan, another popular savings account for children.
A 529 plan allows parents to save for their child's education, but regular income tax and a 10% tax penalty are assessed on withdrawals used for things other than qualified education expenses or a Roth IRA rollover.
Withdrawals from a Trump Account will be subject to regular income tax. If the accounts follow the same rules as other traditional retirement accounts, they will also be subject to a 10% tax penalty if a distribution occurs before age 59 1/2. That penalty may be waived when the money is used for specific purposes, such as up to $10,000 used for a first-time home purchase.
What Are the Benefits of a Trump Account?
Trump Accounts offer parents one more option to save for their children's future.
"The initial main benefit is $1,000 for every (qualifying) child," Cummings says. "I hasten to add that that's a one-time pilot program." Children born after 2028 won't receive this benefit.
The opportunity for employers to contribute to these accounts could make them a nice added perk for workers while offering a tax deduction to businesses.
Once a child reaches 18, distributions are treated the same as those from a traditional retirement account.
Evan Morgan
Does a Trump Account Have Drawbacks?
When it comes to tax benefits, the Trump Account lacks some of the incentives that come with other savings and investment vehicles.
Contributions to a Trump Account are not tax-deductible, and withdrawals are subject to income tax, meaning their only tax advantage is that no taxes are owed on gains until money is withdrawn. For comparison, money from a 529 plan can be withdrawn tax-free when used for qualified education expenses. And while there is no federal tax deduction for 529 contributions, several states offer deductions to their residents.
"The lower contribution threshold is the biggest drawback that I see," Genuardi says. The $5,000 contribution limit for a Trump Account is relatively low, and some worry that the funds could reduce how much financial aid students receive for higher education.
"There has been chatter online that it could be viewed as the child's asset when they go to apply for college," according to Genuardi.
What's more, with a 529 plan, parents can contribute up to the annual gift tax exemption – $19,000 per parent in 2025 – without affecting their lifetime gift tax exemption. That may not be the case with Trump Accounts.
"It's not clear whether this will count against the gift tax exclusion," Morgan says.
The lifetime gift tax exclusion isn't likely to be a consideration for most parents, but it could factor into estate planning decisions for those with a very high net worth.
Should I Start a Trump Account for My Child?
For parents with eligible children, opening a Trump Account to receive the government's $1,000 deposit makes sense. It can also be a smart move if an employer offers to deposit money as a workplace perk. However, when it comes to whether parents should contribute, a Trump Account may not be the best option.
"I think that's going to depend on the means of the parent," says Morgan.
If a parent has maxed out all other tax-advantaged ways to save for their child, then they may want to put money in a Trump Account. If not, they may want to start with a 529 plan or Roth IRA first.
A 529 plan has a higher contribution limit than a Trump Account, and in some states, that money may be deductible from state income taxes. Withdrawals can also be tax-free if used for qualified education expenses, and if not needed for education, up to $35,000 of a 529 balance can be rolled over to a Roth IRA.
Parents can open custodial Roth IRAs for children who are working and have earned income. As with Trump Accounts, contributions to a Roth IRA are not tax-deductible. However, withdrawals from a Roth IRA can be tax-free while withdrawals from a Trump Account are subject to income tax.
"I don't believe in an all-or-nothing approach," Genuardi says. She notes that parents don't have to choose only one account for their child's savings, and while 529 plans may be good for college, a Trump Account could provide money to be used beyond that. "I'm all for anything that gets people saving and that makes investing simple for the long term."
When Will Americans Know More About Trump Accounts?
There are still many questions that need to be answered about Trump Accounts and how they will be administered.
"I'm not sure if they'd be triggered by birth or if the parent would initiate it," Genuardi says as one example.
Those details won't be known until the IRS issues its rules for the accounts.
"Treasury can take up to 18 months to promulgate tax regulations," Cummings says.
Still, the accounts are scheduled to be available starting on July 4, 2026, so it seems that rules should be in place sometime before then. Numerous provisions of the OBBB require rulemaking and the IRS is facing challenges that could hinder its ability to work efficiently.
"The IRS is in turmoil," Morgan says. The agency has lost a quarter of its staff since January, and there have been six IRS commissioners so far this year.
That means it's anyone's guess when rulemaking for Trump Accounts will be completed. It could be next month or next year. As Cummings says: "Stay tuned."
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