“Trump Account”: New Tax-Deferred Investment Accounts for Children
The One Big, Beautiful Bill Act (OBBBA) created a new tax-deferred investment account for children, called a “Trump Account.” These accounts are designed to provide long-term savings options that parents can use to provide for their children’s future. While we are awaiting further regulatory guidance on these accounts, key points are as follows:
Pilot Program:
The U.S. Government will fund the accounts with $1,000 for children born between January 01, 2025 and December 31, 2028. If the parents do not open an account, the Treasury Department will automatically open an account and fund the $1,000 for eligible children claimed on tax returns. Parents can opt out of these accounts. For children born before 2025, accounts can still be opened and funded up to $5,000 annually, but these accounts are not eligible for the $1,000 funding from the Treasury Department.
Contributions:
Annual contributions are capped at $5,000 (indexed for inflation).
Employers can contribute up to $2,500 per year into these accounts and this will not be counted as income to the employee.
No contributions are allowed until 12 months after the enactment of the OBBBA (signed into law July 04, 2025)
Investment options:
Trump Account funds must be invested in a low-cost, diversified index fund that tracks an index of U.S. equities
Withdrawals:
No withdrawals before age 18
Withdrawals from ages 18 – 59.5 are subject to a 10% early withdrawal penalty (awaiting further IRS guidance)
Tax Treatment:
Contributions are not tax deductible
Earnings grow tax-deferred
Subject to same tax treatment as IRA withdrawals (awaiting further IRS guidance)
Considerations:
An account funded with $1,000, assuming no other contributions, could grow to as much as $490,000 at age 65 assuming a 10% average annual return
The $1,000 funding is “free money” and has no downside. For additional savings opportunities for similar goals, consult with your tax and financial professionals and consider alternative options such as a 529 Plan or Custodial account.
