A Primer for Parents – Center for Retirement Research

Last year’s tax bill created a new savings vehicle that starts before birth — the Trump account. Although these accounts are similar to IRAs in some ways, they offer different contribution rules, investment restrictions, and distribution provisions.

Like other tax-advantaged accounts — IRAs, Roth IRAs, and 529 plans — Trump accounts come with important nuances. The following is a brief overview of how they work and what families should consider for their children.

“Growing Season”

Trump accounts are expected to be available starting in July 2026. Depending on IRS guidance, accounts can be set up via IRS Form 4547 or through an online application at trumpaccounts.gov.

The defining feature of Trump’s account is the “growing period,” which begins at birth and ends on December 31 of the year before the child turns 18. During this period, donations are permitted, investments are prohibited, and distribution is generally prohibited.

Contributions

As of July 4, 2026, contributions can be made by employers, a state or non-profit organization, or anyone else including parents, grandparents, or a beneficiary. The standard annual contribution limit is $5,000 for individuals. The annual limit for employers is $2,500, up from the $5,000 limit. Contributions from charitable organizations and the government are not subject to the annual limit of $5,000. The tax status of donations varies by donor: individual donations are made on a tax basis, while those from employers or other organizations are on a pre-tax basis.

Perhaps most notable for parents of newborns is the pilot offering, a one-time donation of $1,000 (if selected) for eligible children born from 2025 to 2028. For families with eligible children, this government-sponsored seed donation is not easy to ignore.

During the “growth period,” assets must be held in mutual funds or ETFs that track an index of major US companies and have expense ratios of less than 0.10 percent. These rules limit payments and speculative strategies but also limit wide diversification.

IRA Similarities and Differences

Trump accounts differ from IRAs in several ways. First, there is no earned income requirement, so the child does not need to work to receive account contributions.

Second, as noted, individual contributions are similar to Roth (rather than traditional) IRAs in that they are not deductible, which affects how the withdrawal is taxed later.

Third, contributions to the Trump account do not affect the child’s ability to make contributions to an IRA. A working teenager can contribute to both a Trump account and an IRA.

From a policy perspective, the absence of an income requirement makes Trump accounts more like child development accounts than traditional retirement plans.

Distribution and Taxation

Propagation is generally not allowed during the growing season. Regular withdrawals may begin on January 1 of the year the beneficiary turns 18.

Taxes on distributions generally follow standard IRA rules. Only private out-of-pocket contributions (from parents, grandparents, child, etc.) make up the foundation — meaning the $1,000 government seed money, employer contributions, and any state/donation contributions do not create a foundation and will be fully taxable upon withdrawal and all dividends.

It says the account is funded with $4,000 from parents and $1,000 from the state’s testing program. The account grows to $40,000 at retirement. The free base return is just $4,000, or 10 percent of the account value. This means that any distribution will be 90 percent taxable income. The Trump account is always kept separate from the other IRAs that benefit from this calculation, so the taxable and non-taxable portions will never be combined across accounts.

The Treasury Department and the IRS expect to issue additional guidance regarding this tax treatment, so more clarity is forthcoming. If there is a reasonable growth in the accounts, it seems that a large portion of the distribution should be subject to income tax.

For early withdrawal (before age 59 ½), there will be a penalty of 10 percent on the taxable portion unless otherwise specified.

After 18: Alignment with the IRA Rules

Once the growth period is over, Trump accounts are generally governed by the standard rules of traditional IRAs including contributions, distributions, rollovers, Roth conversions, and RMDs.

The IRS guidance specifies that, after the maturity period, the Trump account may be transferred to an IRA or other qualified retirement plan. Some may choose to roll the account over to a traditional Roth IRA when they turn 18, eliminating the need to track a separate account type.

This change may present an opportunity for planning. If a young adult has little taxable income, converting the account to a Roth IRA can create a small tax burden while locking in decades of tax-free growth.

Big Picture

Trump accounts may be used for a variety of purposes, including education or retirement. But 529 plans continue to offer better college savings benefits, including potential state income tax deductions, extensive investment menus, and 100 percent free withdrawals for qualified education expenses.

Trump accounts are less geared toward education savings but have greater long-term retirement flexibility than 529 accounts — especially if they’re eventually converted to a Roth IRA.

For families with children born between 2025 and 2028, choosing the $1,000 test contribution seems straightforward. Additional employer or philanthropic initiatives aimed at investing in accounts may increase early balances.

Broadly speaking, Trump’s accounts represent an attempt to build structures from birth. As with any type of new account, participation rates and behavioral responses will determine the ultimate impact of this account. For families and financial planners, the relevant question is not whether Trump’s accounts are inherently good or bad but how they fit into a broader savings strategy. When used thoughtfully alongside 529 plans and IRAs, they can provide a meaningful start to long-term financial security.

Luke Delorme, CFP® is the Director of Financial Planning at Tableaux Wealth in Great Barrington, MA (www.tableauxwealth.com), is accessible at luke@tableauxwealth.com. To stay updated on the Squared Away blog, join our free mailing list.

This blog post is for informational and educational purposes only and should not be construed as financial advice. Consult a qualified professional for advice specific to your situation.