The Working Families Tax Cut Act introduced a new type of savings account called Trump Accounts. These investment-style savings accounts are designed to help American families build long-term savings for their children’s future using after-tax contributions, with a little bit of help from the federal government.
Since these accounts are new, taxpayers have a lot of questions about how they work and what makes them different from other savings vehicles like Baby Bonds, traditional IRAs, and 529 plans. Here’s what you need to know.
What is a Trump Account?
Trump Accounts are a new type of savings account designed for children under 18. Think of them as a jumpstart on your child’s retirement savings via an investment account that can grow tax-free alongside your child. A parent or guardian sets up the account and manages it until the beneficiary (child) turns 18.
Parents, family members, or even employers can contribute to the beneficiary’s account each year, up to a set contribution limit. Funds typically cannot be withdrawn until the child turns 18.
The IRS is expected to provide additional guidance on Trump Accounts in the coming months. For now, it seems that a Trump Account effectively converts to an IRA in the year the child turns 18, and typical IRA withdrawal rules should apply (more on that soon).
Trump Accounts vs. 529 plans and traditional IRAs
You can think of a Trump Account as a hybrid between a custodial traditional IRA (an IRA a parent opens and manages for their child) and a 529 plan. These Trump savings accounts combine the tax-deferred growth of an individual retirement account with the increased flexibility of a 529 savings account.
Unlike a traditional IRA, the child does not need to have earned income to accept contributions to their Trump Account, and almost anyone can contribute on the child’s behalf. And unlike a 529 plan, account funds can be used for more than just qualified education expenses when withdrawn.
What are Trump Accounts for newborns?
If you’ve seen headlines mentioning “Trump baby savings accounts” or something similar, don’t let that confuse you. Trump Accounts for newborns are the same type of account mentioned above, but with an extra perk. Children born in tax years 2025 through 2028 are eligible for a $1,000 seed contribution from the federal government, which will be deposited directly into their account after birth. Parents will need to elect whether they want the government to deposit $1,000 into their child’s Trump Account.
That $1,000 serves as an initial deposit to kickstart the child’s savings. Parents will still be able to contribute to the account (up to the annual contribution limit) on top of that $1,000 federal grant.
Who qualifies for a Trump savings account?
To qualify for a Trump Account, the child must meet the following eligibility requirements:
- Be under 18 for the entire calendar year (for example, you cannot open a Trump Account in the year the child turns 18).
- Have a valid Social Security number (SSN).
- Have a parent or guardian who opens (or opts into) the account. There are currently no citizenship or SSN requirements for the child’s parents.
- To receive the $1,000 federal contribution, the child must be a U.S. citizen and be born between 2025 and 2028.
What are the contribution rules and limits for a Trump savings account?
Unlike a traditional IRA, the child does not have to have earned income to accept contributions to their Trump Account. Additionally, pretty much anyone can contribute to these accounts, including family members, friends, nonprofits, and even employers.
Here are the main contribution rules to keep in mind:
- Parents and others can contribute up to $5,000 per year (combined total) to a child’s Trump Account.
- Contributions from individuals are made with after-tax dollars. According to current IRS guidance, these are not tax-deductible before the year the child turns 18.
- Employers can also make employer contributions of up to $2,500 per year, which are tax-exempt and do not count as taxable income. At the time of publication, it seems employer contributions count toward the total annual contribution limit of $5,000, but it’s possible that IRS guidance on this could change.
- Tax-exempt entities (e.g., charities, state and local governments, private foundations) can also make tax-free contributions to a Trump Account. These won’t count toward the $5,000 annual limit.
- If contributions exceed $5,000 in a single year, the excess contribution must be removed from the account.
Starting in 2028, the $5,000 contribution limit will increase with inflation. No new contributions can be made in the year the child turns 18.
How do withdrawals from Trump Accounts work?
While Trump Accounts are designed to help families save early, they’re also meant for long-term savings, so withdrawals aren’t something you can make right away. You generally can’t take distributions until the year the child turns 18. At that point, the Trump Account is expected to be treated like a traditional IRA in the child’s name, unless the IRS issues guidance stating otherwise.
What happens when the child turns 18
- The Trump Account becomes like a traditional IRA, owned by the child (now an adult).
- From this point forward, only the account owner can make contributions, and only if they have earned income (like wages or self-employment earnings). If a parent wants to continue making contributions for their child, they can give the child the money, and the child will need to deposit it into the Trump Account themselves.
- Contributions made after this transition may qualify as tax-deductible, depending on the child’s taxable income and filing status. See our guide to traditional IRAs for more info on their potential tax benefits.
- All funds in the account continue to grow tax-deferred through eligible investment accounts, which could include mutual funds, exchange-traded funds (ETFs), or index funds.
After-tax vs. pre-tax withdrawals
There has been no official guidance yet on how withdrawals from Trump Accounts will be taxed.
When IRS guidance on this is provided, this page will be updated with new and confirmed information.
Early-withdrawal exceptions
Like an IRA, if the child withdraws money from their Trump Account before age 59½, the distribution will likely be subject to a 10% early-withdrawal penalty in addition to ordinary income tax rates. However, this penalty can be waived if your withdrawal meets specific exceptions under IRS rules.
A penalty-free withdrawal before age 59½ may be allowed for:
- Paying for higher education
- The birth or adoption of a child
- Down payments for first-time home buyers
The IRS website has a full list of exceptions to tax on early distributions.
How to open Trump Account
Trump Accounts are expected to become available in July 2026. In the meantime, TaxAct® can help you apply for a Trump Account using Form 4547 when you file your Form 1040 tax return with us. We’ll send everything to the Treasury Department, and they will contact you with further details.
Right now, we don’t know what other methods will be available to open and fund a Trump Account, or which financial institutions will offer them. The Treasury Department still needs to clarify some things, but we will update this page as soon as we have more information.
When should I open up a Trump account?
It’s a good idea to open a Trump account as soon as you can, if you are interested in one. Like with all retirement savings accounts, the earlier you contribute, the more time your child’s account balance has to grow through compound interest.
FAQs
How do Baby Bonds differ from Trump accounts?
Baby Bonds don’t currently exist at the federal level, and Connecticut is the only state offering them statewide. The concept behind Baby Bonds is to create child trust funds where the government deposits money for every newborn, with larger contributions going to lower-income families. Once the child turns 18, they can use the funds for approved expenses like education or housing. Maine offers a similar initiative called the Alfond Grant, which provides a $500 grant for every baby born a Maine resident, automatically investing it in a NextGen 529 account to help pay for future higher education costs.
On the other hand, Trump Accounts for kids are investment-based savings accounts rather than government trust funds. They’re funded mainly by parents, employers, or other contributors, not ongoing government deposits. However, eligible newborns (born 2025 to 2028) will still receive a one-time $1,000 seed deposit, and the funds grow tax deferred.
What is the difference between a 529 account and a Trump account?
A 529 plan focuses on education expenses with tax-free growth and withdrawals (when used for qualified schooling). Just like a 529 plan, the Trump Account beneficiary can receive contributions without having earned income, and almost anyone can make deposits into their account. However, there’s no obligation that Trump Account funds be spent on education or any specific purpose. The account owner can use Trump retirement savings account funds for any purpose once they reach age 59 ½.
Can I ever withdraw from a Trump Account before the child turns 18?
In most cases, no. Trump Accounts are designed to hold funds until the year the child turns 18. However, if the child passes away, the account’s funds can typically be withdrawn or transferred to another eligible beneficiary without penalty. Likewise, if the child becomes disabled, you might be able to roll their Trump Account into an ABLE account.
Are Trump accounts subject to any special regulations?
Yes. The accounts must:
• Be opened for U.S. citizens under 18 with valid Social Security numbers.
• Invest in low-cost stock mutual funds or ETFs mirroring a U.S. stock market index (like the S&P 500).
• Follow the annual contribution and age-based rules discussed above.
Are contributions to Trump Accounts tax-deductible?
Current IRS guidance doesn’t make contributions to a child’s account tax-deductible before the year they turn 18. Instead, the main tax benefits come from tax-deferred growth.
Once the child turns 18, the contributions are likely to be tax-deductible if they meet the IRS eligibility rules.
The bottom line
Trump savings accounts are a new way for families to invest early in their children’s futures. With the $1,000 federal grant for newborns, flexible spending options, and tax-deferred growth, these accounts are another way to help families with wealth management.
If you have a young child or are expecting one soon, keep an eye out for updates from the Treasury Department and IRS for more guidance on what financial institutions may be offering Trump accounts.
And when tax time rolls around, TaxAct is here to help you make sense of it all, whether it be applying for a Trump Account or reporting investment income on your return when the time comes. We can help you file with confidence, no matter your tax situation.
This article is for informational purposes only and not legal or financial advice.
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The OBBB is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used here, but they refer to the same set of tax changes.
