Contributed by: Henry, FreeTaxUSA Agent, Tax Pro
With the signing into law of the One Big Beautiful Bill Act (OBBBA), the federal government introduced Trump Accounts, a new tax-advantaged savings and investment option for children. These accounts are designed to help families save for their children’s future. Here’s an overview of what we know about Trump Accounts.
Who is eligible?
The federal government will automatically create accounts for U.S. citizen babies born between January 1, 2025, and December 31, 2028, with a one-time $1,000 contribution per child. An account will be established once the child’s birth is registered and a Social Security number is issued.
Children born before 2025 who are under age 18 and have a Social Security number are also eligible for a Trump Account. However, they won’t receive the $1,000 government deposit.
Only a parent or legal guardian may open an account on behalf of an eligible child. There are no income or filing status requirements for parents to open an account. However, the parents or parent claiming the dependent child on their tax return must have a work-eligible Social Security number.
How do Trump Accounts work?
Trump Accounts are long-term savings accounts similar to traditional IRAs. Money in an account is invested in eligible mutual funds or exchange-traded funds (ETFs) that track a major index, and any earnings from those investments grows tax deferred.
Parents or guardians of eligible children are able, but not required, to make additional contributions to a Trump Account beyond the initial $1,000 government deposit. Contributions can also come from others, including family members, friends, employers, and nonprofit organizations.
How much can be contributed?
- Each child may receive account contributions of up to $5,000 per year.
- Up to $2,500 of that amount can come from the child’s or parent’s employer.
- Employer contributions aren’t included in the employee’s or child’s income.
- Certain charities and local, state, and federal government agencies can also make tax-free contributions to a child’s account.
- These contributions, including the initial $1,000 government deposit, don’t count toward the $5,000 annual limit.
- The annual contribution limits are adjusted for inflation starting in 2027.
- Contributions to a Trump Account before the child turns 18 don’t impact the child’s contribution limits for other tax-advantaged retirement plans, such as IRAs.
- Contributions to a Trump Account are treated as gifts to the beneficiary and count toward the donor’s annual gift tax exclusion limit.
- After the child reaches age 18, the normal contribution limits and rules for traditional IRAs apply.
- At that point, only the child will be permitted to contribute to their account.
What are the tax benefits of Trump Accounts?
The primary advantage of a Trump Account is tax-deferred growth. This means investment earnings aren’t taxed until the beneficiary withdraws funds, allowing for compounding growth without immediate tax implications.
According to the Council of Economic Advisers, here’s what the balance of a Trump Account for a baby born in 2026 would look like under a scenario of average returns on the U.S. stock market:
Even without any additional contributions beyond the initial $1,000 government deposit, the account could have accumulated savings of nearly $6,000. Once the child turns 18, contribution limits increase to align with IRA limits. Looking ahead another ten years, we can see how the savings have the potential to add up over time:
There’s no deduction for Trump Account contributions. However, as mentioned above, some contributions – such as those made by an employer, a charity, or the government – can be made with pre-tax dollars.
How do withdrawals work?
No distributions are allowed from a Trump Account until the child turns 18.
After age 18, the normal rules for traditional IRAs apply. This means the account owner can begin taking distributions at age 59 ½ for any purpose. Early withdrawals before age 59½ may be subject to a 10% penalty, unless an exception applies. The additional tax can be avoided if funds from the account are used for qualified purposes, including paying for college, starting a business, or buying a first home.
Because a Trump Account will typically include both after-tax amounts and pre-tax amounts, taxes on withdrawals will depend on what portion of the account is being withdrawn:
- After-tax amounts (most contributions) will be withdrawn tax-free, since taxes were already paid on these funds.
- Pre-tax amounts (any tax-free contributions, appreciation, or earnings) will generally be taxed at the beneficiary's ordinary income tax rate.
Getting a Trump Account started
You’ll be able to open and contribute to a Trump Account for your child starting on July 4, 2026. If you'd like to open an account for an eligible child, you can send this information with your tax return when you file with FreeTaxUSA (starting with 2025 tax returns). Simply follow menu path: Misc > Open an Investment Account > Trump Investment Accounts and enter the required information as prompted by the software.
Conclusion
A new way to save for your child’s future is coming in 2026 with the launch of Trump Accounts by the federal government. With high contribution limits, automatic account creation for newborns, and opportunities for employer support, these accounts encourage long-term savings and offer tax-deferred growth.
Curious about other changes introduced by the OBBBA? Read this Community article, What are the top ten changes in the One Big Beautiful Bill Act?, for a breakdown of the details.