Wealth Planning Commentary – July 28, 2025

What Families Should Know about the New Trump Account

Earlier this month, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, which included a variety of new child-friendly tax provisions. Among them is a new child savings account called a “Trump Account”. While Trump Accounts may help some families on the margins, they do not represent a groundbreaking disruption to the child savings landscape.

The new Trump Account is a tax-deferred investment vehicle seeded with a one-time $1,000 government-funded contribution. This government contribution is available for every U.S. citizen baby born between January 1, 2025, and December 31, 2028, who has a Social Security number. To encourage widespread adoption, the federal government will automatically open accounts for eligible newborns if families do not take action on their own.

In structure, the Trump Account operates similarly to a modified Traditional IRA for children. Families may contribute up to $5,000 per year in after-tax dollars, with contributions indexed for inflation beginning in 2027. Investments will be allocated to low-cost index funds, offering the potential for long-term capital growth. Accounts are held until the child turns 18, at which point withdrawals are taxed in a somewhat complex fashion due to mixed contributions. Non-qualified withdrawals from ages 18 to 59.5 will be subject to ordinary income tax and a 10% penalty. Exceptions to the 10% withdrawal penalty include college tuition and a first-time home purchase (up to $10,000 penalty-free). However, since some contributions were made on an after-tax basis, withdrawals will have tax-free and taxable components. This is where it gets complicated; withdrawals will include a pro-rata mix of after-tax contributions, the government $1,000 seed money, and investment earnings. The IRS is expected to provide further clarification.

An additional feature allows employers to make up to $2,500 in tax-free contributions on behalf of employees – creating a potential new benefit option for companies seeking to support working families. Employers interested in enhancing family-focused fringe benefits may find the Trump Account an attractive new vehicle, particularly given the ability to contribute on behalf of employees without incurring tax liability. Note, however, that employer contributions will reduce the $5,000 contribution limit for families.

Trump Accounts are expected to offer a limited benefit for certain families, and those welcoming a child between 2025 and 2028 should strongly consider opening one. The $1,000 government contribution represents a no-cost opportunity to begin saving for the child’s future. That said, Trump accounts should not be the primary child-savings vehicle for most families, as there are others such as 529 plans that offer more income tax benefits. 

It is likely more prudent to maximize contributions to 529 plans before Trump Accounts because 529 plans offer greater income tax benefits for qualified education expenses and a Roth rollover as well. Trump Accounts could serve as a valuable complement to existing strategies like 529 plans or Roth IRAs, but should not be viewed as a replacement or better alternative to those accounts in most cases.

As with any new program, custodians will need time to set up and standardize administration, and so families will likely not be able to open Trump Accounts until 2026. The IRS is also expected to issue additional regulatory guidance. Families and employers should prepare for a transitional period as implementation unfolds.

Please reach out to your Wealth Manager with questions about how a Trump Account may fit into your broader family savings strategy.