The One Big Beautiful Bill Act, passed in July of 2025, includes provisions for the new “Trump Account”, which is a tax-deferred account created to encourage long-term savings for qualifying children.
Trump accounts are similar to a traditional IRA but are specifically for children under age 18. Here are some details you need to know:
- Accounts may be opened by an “authorized individual” for all qualifying children (account beneficiaries) beginning July 4, 2026. For qualifying children born after December 31, 2024, and before January 1, 2029, there will be a one-time government-made “pilot program” contribution in the amount of $1,000 .
- After this, employers and individuals can collectively contribute up to $5,000 annually per child. There are no income requirements for the beneficiary or the individual contributor, however contributions are non-deductible for individuals and are considered gifts for gift tax purposes. This could be a great opportunity for taxpayers with young children who have no earned income.
- Of the $5,000 total maximum annual contribution, the employer portion can include a contribution of up to $2,500 per year (inflation adjusted after 2027). For employers, their “Trump account program” amount is excludable from gross income, similar to retirement contributions. This requires a separate written plan for the employer and applies to all employees, regardless of income or ownership status.
- Funds must be invested in low-risk US index funds during the “growth period” until January 1st of the year the child reaches age 18 when the account exits the growth period.
- After the growth period, the account follows traditional IRA rules for distributions. Distributions are considered ordinary income, to the extent that they exceed the amounts contributed (basis). Employer and government contributions are not included in basis.
- Each account is established and managed for the exclusive benefit of the individual child. All contributions, investment growth, and distributions are tracked separately for each child.
Who qualifies as an “authorized individual” to open an initial account? (In the following order)
- Legal guardian
- Parent
- Adult sibling
- Grandparent
What are the qualifications for a child as an account beneficiary?
- The child must be under age 18 at the end of the year in which the election was made (for an election in 2026, the child must have been born after December 31, 2008).
- The child must have a valid social security number issued before the election is made.
- The child must have no other Trump account election filed on their behalf
When can distributions be taken?
- Funds can be accessed without penalty in the calendar year that the child turns 18 for qualified expenses like education, a first home purchase (subject to a $10,000 lifetime cap), birth or adoption (up to $5,000), or other traditional IRA exceptions.
- Otherwise, penalty-free withdrawals generally cannot be made until the beneficiary reaches age 59½
- The penalty for early distributions is a 10% additional tax on the taxable portion of the distribution
How does the authorized individual open the initial account?
- File form 4547
- At any time, or…
- With your yearly return (excluding amended returns)
- For our clients, if your child is born in the years 2025 to 2028, we will work with you to file Form 4547 with your personal tax returns for the year your child was born. This will make sure your child will receive the $1,000 contribution from the government unless you have established an account already.
- Use the portal at www.trumpaccounts.gov (portal development is expected to complete prior to July 4, 2026)
- The authorized individual must complete an authentication process before the account is fully opened
Information is still being released by the administration. Be sure to check in at www.trumpaccounts.gov and sign up for email updates.