A Note on Trump Accounts

By Ben Dolan, CFP®

‍

In an effort to broaden savings options, introduce the miracle of compounding interest, and promote the benefits of owning equity to the next generation, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4^th 2025, created the Trump Account. The creation of the account created a lot of buzz surrounding one provision: the federal government will deposit $1,000 into the account for all every U.S. citizen born in the years 2025 through 2028 (note, while I’m very interested in creative ways to get more US citizens involved in investing, this giveaway seems foolish in the face of US debts, deficits and unfunded liabilities, but I digress).

‍

Less well-known are the other rules of the road regarding Trump Accounts (TAs). So, here’s a primer:

‍

• TAs can be opened and contributed to for any child prior to the year of their 18^th birthday. Note, July 4^th, 2026, is the day the accounts can be opened, so we still have some time before these accounts are available.
• TAs were created in the spirit of traditional retirement accounts by giving families an option to save on behalf of children and defer tax on the earnings over a longer period, thereby letting compounding run wild.
• Contributions to TAs come in three forms:
  • Direct Contributions – Made by individuals (ie parents, friends, grandparents etc). These are cash contributions made in after-tax dollars.
  • Employer Contribution – Can be made to the TA of an employee (if the child is of working age but before the year the child turns 18), or to the TA of an employee who has opened a TA for their minor child. For example, if Michael Foster opens a TA for his new son Mick, DCA could contribute to Mick’s TA. Employer contributions are on a pre-tax basis.
  • Qualified General Contributions – Made by the federal, state or local government. 501c3 organizations can also contribute.
• The total amount of combined direct and employer contributions for 2026 is $5,000. However, the employer contributions are capped at $2,500 per employee. If both parents work and each employer provides this benefit, then the combined amount of employer contributions to a single TA could reach $5,000.
• Parents can complete Form 4575 or complete the necessary online forms to opt-in to the pilot program and receive the $1,000 in the Trump Account. Note, the $1,000 funded by the federal government does not count toward the $5,000 limit for direct and employer contributions.
• Upon turning 18, the TA reverts to a Traditional IRA and the rules regarding Traditional IRAs (e.g. the child must have earned income to contribute to the account).

‍

Before jumping headfirst into the TA pool, you might want to pause for a moment and consider your goals and cash flow. For example, if your priority is education funding and you have limited cash flow, you will want to fund 529s before you consider funding the TA, given that the purpose of the TA is long-term retirement savings.

‍

Also, while the TA has many benefits, you should consider the tax ramifications of this type of account versus alternatives. Ben Henry-Moreland points this out in an article for Kitces.com when he compares the TA to an UTMA/UGMA account that harvests gains at a 0% rate each year: “Because TAs remain tax-deferred and allow no withdrawals before the beneficiary's age-18 year, all growth in the account effectively remains "unharvested". Or put differently, after several years of investing, a TA's balance may consist of much more growth – and much less basis – than a taxable account where gains were harvested up to the kiddie tax threshold each year. And the growth that's in the TA, once it's distributed, is taxed at ordinary income rates (of up to 37%) rather than the capital gains rates (of up to 23.8%) that the taxable account is subject to. So, the TA will end up with more future taxable income than the taxable account, and that income will be taxed at higher rates.”

‍

While the new TAs are an exciting opportunity, it’s important to evaluate them in light of your specific situation.