The One Big Beautiful Bill Act (OBBBA), enacted last summer, introduced a range of tax and investment changes for CPAs, investment advisors, and individual investors. One change you may be hearing more about is the creation of so-called “Trump Accounts” for children’s savings. With several established options already available for saving for minors, it’s natural to wonder how this new account works and whether it deserves a place in your financial plan.
Account Features
Trump Accounts were designed to give kids a head start on retirement savings. Parents can elect to open an account for a child under age 18 who has a Social Security number, either online or by filing IRS Form 4547. The accounts will be held and administered by the U.S. Treasury, with additional guidance still expected.
From a structural standpoint, Trump Accounts resemble a non-deductible IRA for minors. Contributions may be made from birth through the year the child turns 17. Unlike a traditional or Roth IRA, however, the child does not need earned income to contribute. In the year the child turns 18, the account transitions to operate under traditional IRA rules for future contributions and withdrawals.
Contributions
Trump Accounts allow multiple funding sources, each with specific limits. The annual contribution limit is $5,000 per child, made with after-tax dollars and therefore not deductible on the contributor’s tax return. Contribution limits are expected to be indexed for inflation beginning in 2028. Of this $5,000 limit, employers of either the minor or parent may contribute up to $2,500 annually on a pre-tax basis. In addition, state and federal governments, as well as nonprofit organizations, can initiate pre-tax grant contributions. These grant amounts will not count towards the annual limit.
Withdrawals
Unlike other minor savings account options, funds in Trump Accounts do not allow withdrawals until the year in which the minor turns 18. After that point, traditional IRA distribution rules apply: funds may be withdrawn penalty-free beginning at age 59 ½, while earlier distributions are generally subject to a 10% penalty unless an exception applies. Because the account may contain both after-tax contributions and pre-tax contributions or earnings, withdrawals are taxed on a pro-rata basis. Each distribution is treated as part return of basis (tax-free) and part taxable income (at your ordinary income rate), depending on the account composition at the time of withdrawal.
Pros and Cons
How will you know if a Trump Account is the right strategy for you, compared to other minor savings account options? Consider the following pros and cons.
The primary benefit is the power of compounding. Starting retirement savings at birth provides decades of potential tax deferred growth. The lack of an earned income requirement also sets apart Trump Accounts from minor IRAs. Additionally, the government has issued a pilot program contributing $1,000 pre-tax to a Trump Account for each child born in the US from 2025-2028, if an account is opened.
On the other hand, the annual contribution limits and withdrawal limitations make Trump Accounts less flexible than a 529 Plan or taxable custodial account. Annual contribution limits are relatively low, and funds are inaccessible for education or other needs before age 18. The mix of pre‑tax and after‑tax contributions requires careful tracking of basis over time, adding administrative complexity. Limited flexibility also comes into play with investment options, as the account can only be invested in eligible mutual funds or ETFs that track the domestic stock market. Finally, future distributions are taxed at ordinary income rates, which may be less favorable than capital gains treatment.
As with any new legislation, additional guidance will likely refine how Trump Accounts operate in practice. Consult your CPA or CFP® professional when navigating your child’s savings account options to see if this new account type could be useful, or if another option is better suited to your goals and tax situation.
Sarah D. Nix is a CFP® professional and Lead Advisor with Keller Wealth Advisors.