What Are Trump Accounts? A Guide to the New Savings Vehicle for Children

What Is a Trump Account?

A Trump Account is a federally established investment account for children under age 18 created under the One Big Beautiful Bill Act (2025). The account allows parents, employers, nonprofits, and the federal government to contribute toward a child’s long-term savings and automatically converts into a traditional IRA at age 18.For families focused on long-term financial planning, the structure creates a unique opportunity: decades of tax-deferred market growth beginning in childhood.

A Trump Account is a savings and investment account available for children under age 18. The account functions similarly to a dedicated investment account during childhood and automatically converts into a traditional IRA once the child turns 18.

What is the goal behind these accounts? To allow children to gain early exposure to long-term investing and compound growth before adulthood.

Trump Account Quick Facts:

• Annual contribution limit: $5,000
• One Time government starter deposit: $1,000
• Eligible birth years for starter deposit: January 1, 2025, and December 31, 2028
• Requires a valid Social Security number
• No earned income requirement during childhood
• Automatically converts into a traditional IRA at age 18
• Investments limited to low-cost index funds and ETFs
• Withdrawals prohibited before age 18

Accounts are expected to become available through participating banks, brokerages, and investment firms beginning in July 2026.

How Do Trump Accounts Work?

Who Qualifies for the Government Starter Deposit?

Children born between January 1, 2025 and December 31, 2028 may qualify for a one-time $1,000 government-funded deposit once the account is opened and the appropriate IRS election is filed.

Children born before 2025 can still open an account, but they are not eligible for the government deposit.

Contribution Rules

Parents, guardians, relatives, and even the child can contribute to the account. Combined annual contributions are capped at $5,000 per year. Contributions are made with after-tax dollars and are not tax deductible.

Unlike traditional IRAs or Roth IRAs, children do not need earned income to receive contributions. Families may also continue contributing separately to other retirement accounts without affecting Trump Account eligibility.

Can Employers Contribute to a Trump Account?

One of the more unique features is the ability for employers to contribute directly to a child’s account.

Up to $2,500 annually may come from a parent’s or child’s employer. These employer contributions are not considered taxable income to the parent, and employers may deduct the contribution as a business expense.

This structure could make Trump Accounts an appealing employee benefit in the future.

Nonprofit and Municipal Contributions

Contributions from government entities and 501(c)(3) organizations made to eligible groups of children do not count toward the annual $5,000 contribution limit.

This provision may create new opportunities for charitable organizations, municipalities, and educational programs focused on long-term financial literacy and wealth building.

What Investments Are Allowed in a Trump Account?

Trump Accounts are intentionally designed around low-cost, diversified investing. Funds must be invested in non-leveraged mutual funds or ETFs that track the S&P 500 or another US stock index. Individual stocks, bonds, leveraged products, and alternative investments are not permitted.

The legislation also caps annual account fees at 0.1% (10 Basis Points or Less) of account balances, pushing providers toward low-cost index investment options.

How Trump Accounts Tax Withdrawals

The tax treatment depends on where the money originally came from.

After-tax contributions made by parents or individuals create “basis,” meaning those dollars can later be withdrawn tax-free. However, employer contributions, government deposits, nonprofit contributions, and investment growth are taxable upon withdrawal because they were never previously taxed.

One important detail is that withdrawals must be taken proportionally across taxable and non-taxable amounts. The IRS does not allow distributions to come exclusively from after-tax contributions first.

For example:

• If 40% of the account consists of after-tax basis
• Then 40% of every withdrawal would be tax-free
• The remaining 60% would be taxable income

Taxable withdrawals taken before age 59½ may also be subject to the standard 10% early withdrawal penalty unless an exception applies. No withdrawals are permitted before age 18.

The Trump Account Lifecycle

1. Open the Account

Trump Accounts may be opened through participating banks, brokerages, and investment firms once a child receives a valid Social Security number. Parents or guardians can open the account and file the IRS election for the $1,000 starter deposit if eligible. Each child may only have one Trump Account, and parents or guardians serve as custodians of the account until the child turns 18.

2. Contribute and Invest Through Childhood

Up to $5,000 per year flows in from any combination of contributors. Funds grow tax-deferred inside a US index fund. The financial institution files annual reports with the IRS and account owner covering contributions, distributions, balance, and basis up until the year the child turns 17.

3. Automatic Conversion at Age 18

The account automatically transitions to a standard traditional IRA and ownership passes to the child. The annual contribution limit rises to $7,000 (the normal IRA limit, indexed for inflation), and earned income rules now apply. Treasury will issue further guidance on the conversion mechanics.

4. Optional Conversion to a Roth IRA after age 18

Converting later allows the young adult to pay taxes on employer contributions, the $1,000 deposit, and accumulated earnings while in a lower bracket, enabling decades of tax-free growth.

5. Penalty-free withdrawals begin at age 59½

Taxable amounts are subject to ordinary income tax; basis from original after-tax contributions is returned proportionally, tax-free. Between ages 18 and 59½, the standard 10% early-withdrawal penalty applies to taxable portions.

What Questions About Trump Accounts Are Still Unresolved?

Several implementation details remain unresolved and will likely require additional IRS and Treasury guidance. Areas still awaiting clarification include:

• FAFSA and college financial aid treatment
• Government benefit eligibility considerations
• Mechanics of the IRA conversion process
• Enforcement of prohibition on withdrawals before age 18

Families considering these accounts should continue monitoring updates before making long-term planning decisions based on assumptions that may change.

Are Trump Accounts a Good Long-Term Investment for Children?

The most powerful feature of Trump Accounts is time. Starting investment exposure during childhood gives families an opportunity to harness decades of compound growth. Even relatively modest annual contributions, when invested consistently over time, can create meaningful long-term wealth accumulation.

Trump Accounts may become a valuable long-term planning tool alongside existing strategies like Roth IRAs, 529 plans, and taxable investment accounts. Families should evaluate how these accounts align with education planning, estate planning, tax strategy, and long-term wealth transfer goals.

As additional IRS guidance becomes available, working with an advisor can help determine how a Trump Account may fit within a broader financial plan.

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Frequently Asked Questions About Trump Accounts

Q1. Are Trump Accounts tax free?

Partially. Parent contributions may generally be withdrawn tax free, while investment earnings, employer contributions, and government deposits are typically taxable upon withdrawal. Note again, that these withdrawals must be taken proportionally across taxable and non-taxable amounts. The IRS does not allow distributions to come exclusively from after-tax contributions first.

Q2. Can grandparents contribute to a Trump Account?

Yes. Parents, guardians, grandparents, relatives, and other individuals may contribute up to the combined annual contribution limit.

Q3. Does a child need earned income to have a Trump Account?

No. Unlike traditional or Roth IRAs, children do not need earned income to receive contributions during childhood.

Q4. Are Trump Accounts invested in stocks?

Indirectly. Investments are limited to qualifying index mutual funds and ETFs tied to U.S. stock indexes like the S&P 500.

Q5. What are the main differences between Trump Accounts vs Roth IRAs

Earned Income. Trump Accounts do not require earned income during childhood and automatically convert into traditional IRAs at age 18. Roth IRAs require earned income and follow different tax treatment and withdrawal rules.

Q6. What are the main differences between Trump Accounts vs 529 Plans

Purpose. 529 plans are designed primarily for education savings, while Trump Accounts function more like long-term investment and retirement savings vehicles for children.

Q7. Who controls a Trump Account before the child turns 18?

Custodianship. Parents or guardians serve as custodians of the Trump Account until the child reaches age 18. At age 18, ownership transfers to the child as the account automatically converts into a traditional IRA.

Q8. Can Trump Accounts Be Used for College?

Unclear. Current legislation has not fully clarified how Trump Accounts may impact FAFSA calculations or financial aid eligibility. Families should monitor future IRS and Treasury guidance.

Q9. Can a Child Have Both a Trump Account and a 529 Plan?

Yes. Trump Accounts do not prevent families from contributing to other investment or education savings accounts, including 529 plans and IRAs.

Q10. How do I open a Trump Account

Trump Accounts are expected to become available beginning in July 2026 through participating banks, brokerages, and investment firms. Parents or guardians will be able to open the account once the child has a valid Social Security number and may need to file an IRS election form to receive the $1,000 government starter deposit if eligible..

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Disclosures: Information provided in this article is general in nature, is provided for informational purposes only, and should not be construed as investment, legal or tax advice. The views expressed are based upon the data available at the time and any such views are subject to change at any time based on market, regulatory or other conditions. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All decisions must be evaluated as to whether they are consistent with your specific situation and should consult with a professional before making any decisions.