A new federal program was passed into law as part of the 2025 One Big Beautiful Bill Act (OBBBA). The program is designed to open individual retirement-style investment accounts for children under the age of 18. Additionally, there is an enhanced benefit specifically for those children born between January 1, 2025 and December 31, 2028.
This column discusses Trump Savings Accounts, known from hereon as “Trump accounts.” Trump accounts were added to Internal Revenue Code (IRC) Section 530. They are modeled loosely as a combination of IRC Section 529 College Savings plans and non-deductible traditional IRAs.
Eligibility for Opening a Trump Account
Any child with a Social Security number who is under age 18 by the end of the year is eligible to open and contribute to a Trump account. Under a pilot program, the Treasury Department will also pre-fund the accounts with $1,000 for children born between 1/1/2025 and before 12/31/2028. These children must have a Social Security number and be US citizens. Unlike an IRA in which an IRA owner must have earned income (salary, wages or net self-employment income) in order to contribute to the IRA, there are no earned income requirements in order to contribute to a Trump account once the account is opened.
Maximum Contributions to A Trump Account
Trump accounts will start during 2026. Maximum annual after-taxed (nondeductible) contributions of $5,000 can be made to a Trump account each year from all sources. Contributions to Trump accounts are supposed to start in July 2026 and can come from everyone. This includes parents, grandparents and other relatives. Rollovers from other Trump accounts are not subject to and do not reduce the $5,000 annual contribution limit. A one-time federal government contribution of $1,000 for eligible children born between 1/1/2025 and 12/31/2028 also does not count towards the $5,000 annual contribution limit.
Employers can contribute up to $2,500 per lifetime for an employee or an employee’s tax dependent. The employer contribution is a fully deductible qualified fringe benefit for the employer and is tax-free until the recipient – the employee or the employee’s dependent – withdraws the Trump account. The $2,500 lifetime employer contribution cap will be indexed for inflation starting in 2029. Contributions to a Trump account do not reduce any other retirement contributions (for example IRAs) for which the child may qualify to contribute. Charities can also contribute to Trump accounts if the contributions are made on an equal basis to all the children, for example, in a certain geographical area or birth year.
Permitted Trump Account Investments
Trump accounts must be invested in low-cost mutual funds (open-end funds) or exchange-traded funds that are made up of mostly US equities. Industry and sector-specific indexes are not permitted. The funds are limited to those with on expenses ratio of up to 0.1 percent.
Like conventional (traditional) IRAs and 529 college savings plans, accrued earnings in a Trump account are not taxed while they stay within the account. However, no withdrawals may occur before the year in which the Trump account owner becomes age 18. Like a non-deductible traditional IRA, a Trump account can be converted to a Roth IRA in which only the accrued earnings within the Trump account will be taxed when converted to a Roth IRA.
Taxation of Trump Account Withdrawals
Withdrawal of Trump account accrued earnings, the $1,000 federal government contribution, an employer contribution, and a charitable organization contribution will be taxed at ordinary tax rates. The withdrawals are also subject to the 10 percent early withdrawal penalty if withdrawn before the Trump account owner is under age 59.5. The 10 percent early withdrawal penalty does not apply if account funds are withdrawn to pay for education, a first home purchase, or to start a business.
Withdrawals from Trump accounts will follow the “common pot” rule presently used for nondeductible IRAs to determine the taxable portion of the withdrawal. Under to “common pot” rule, only the federal government, charitable organizations and employer contributions and accrued earnings will be taxed according to the following formula:
[Federal govt, charitable organizations and employer contributions + accrued earnings]
Total value of account
times
Withdrawal amount
equals
Taxable portion of withdrawal
The following example illustrates:
Example 1. Jason was born June 26, 2025. During 2026, the federal government contributed $1,000 to Jason’s Trump account. Over the next 17 years a total of $25,000 was contributed to Jason’s account from Jason’s family plus $6,000 of earnings. In 2043, Jason’s Trump account is worth $32,000. Jason withdraws $8,000 to help pay his college tuition. The taxable portion of Jason’s Trump account withdrawal is equal to:
[$1,000 + $6,000] /$32,000 times $8,000 = $1,750
No early withdrawal of 10 percent applies because Jason uses his Trump account withdrawal to pay for higher education expenses.
The following is a detailed example for the future use of a Trump account:
Example 2. John and Jennifer Cox have two children: Margaret was born in February 2025 and Meredith, born in April 2028. Each child receives a $1,000 federal government contribution since each child was born between January 1,2025 and December 31, 2028. Starting July 1, 2026, the Cox family contributes $5,000 each for both Margaret and Meredith, staying at the $5,000 annual maximum contribution cap. The Cox family invest both Trump accounts in index ETFs.
No distributions are made from the Trump accounts until Margaret becomes age 18 in 2043 and Meredith turns age 18 in 2046. Once Margaret becomes 18 in February 2043, taxable un-penalized withdrawals are permitted for college, a first home or starting a business. Non-qualified withdrawals are taxed on earnings plus a 10 percent early withdrawal penalty.
Funds can remain tax-deferred in the account until the normal IRA required beginning date (RBD) which will be age 75 for these two children under current IRA rules.
Suppose at age 18, Margaret has the following in her Trump account:
Under the “common pot” rule: $36,500/$121,500, or 30 percent of any withdrawal is taxable. If used for non-qualified purposes, then the 10 percent early withdrawal penalty applies.
For Meredith’s Trump account, suppose John’s employer had put $2,500 in Meredith’s account. She would have the following in her Trump account in 2046:
Under the “common pot” rule.
$39,000 ($35,500 + $1,000 + $2,500)/ $121,500, or 32.1 percent
of any withdrawal would be taxed if used for qualified purposes. If used for non-qualified purposes, then the10 percent early withdrawal applies.
Comparison of a Trump Account, 529 Plan and a Non-deductible Traditional IRA
It probably makes sense to open a Trump savings account for any child born between 2025 and 2028. There is the advantage of opening what is essentially a non-deductible traditional IRA without the requirement for the child to have earned income (salary) in order to contribute to it.
There are college savings “529” plan backers who say that a college savings “529” plan is better than a Trump savings account. However, a college savings “529” plan does to allow tax-free withdrawals for a new home or to start a business.
For parents and grandparents who have sufficient assets to be able to contribute to both the Trump Saving account and a college savings “529” plan, there are many states which offer a state tax deduction or a state tax credit for a college savings “529” plan deposit. The downside to the Trump savings account is that at age 18, a child owns the account and the parent loses the control that they continue to maintain with a college savings “529” plan.
Another reason that the Trump savings account is recommended is that a Trump account will likely qualify for a Roth IRA conversion. A Trump account would therefore be more favorable because of the following reasons:
1. The account can grow tax-free.
2. No “earned income” (salary, wages or net-self-employment income) requirement for contributions.
3. Creates more withdrawal flexibility than college savings “529” plans.
4. Starting at age 18, the Trump account owner can convert the account to a Roth IRA, making sure that the conversion amounts are under the taxable income threshold.
5. Ability to still contribute to a college savings “529” plan account in greater amounts with potential state tax deductions or state tax credits, and
6. Trump savings accounts are considered a retirement account and under current rules, would not count against financial aid for the Trump savings account owner.
Finally, a parent and/or grandparent with sufficient cash flow and a sufficient amount of savings for their retirement could contribute both to a Trump savings account and to a college savings”529” plan.