A New and Largely Unnoticed Savings Option for Children: Understanding Trump Accounts
By: David K. Olive
The IRS recently released its first comprehensive guidance on “Trump Accounts,” a new type of federally authorized savings account for children. The guidance, issued in IRS Notice 2025-68, fills in many of the unanswered questions surrounding these accounts and clarifies how they will operate in practice.
Trump Accounts were created by Congress as part of the One, Big, Beautiful Bill Act and are codified under a new section of the Internal Revenue Code – I.R.C. § 530A. They are designed similarly to 529 accounts for children under the age of 18 and function as highly regulated, retirement-style savings accounts during childhood. The law applies to taxable years beginning after December 31, 2025, although no contributions may be made until July 4, 2026.
Eligibility for Trump Accounts is broad. Any child under age 18 with a Social Security number may have an account, regardless of family income. Accounts may be established by a parent or legal guardian and, in limited circumstances, by the U.S. Treasury.
Annual contributions are generally capped at $5,000 per child, with inflation adjustments beginning in 2027. Contributions may be made by parents, grandparents, employers, states, local governments, and certain nonprofit organizations. Notably, there is no earned-income requirement during childhood, which distinguishes Trump Accounts from other tax-favored retirement vehicles, such as IRAs. Some contributions, including certain government or nonprofit deposits, are excluded from the annual limit.
One of the most significant features is a federal pilot program for newborns. Children who are U.S. citizens and born between January 1, 2025, and December 31, 2028 may receive a one-time $1,000 contribution from the federal government. This contribution does not count toward the annual contribution limit and is intended to give children an early financial foundation that can compound over time. To receive the one-time $1,000 federal contribution, the child’s parent or legal guardian must make a timely election to establish the Trump Account and request the pilot program payment. Under the IRS’s guidance, this election is made by completing IRS Form 4547, “Trump Account Election(s),” or through the online portal at trumpaccounts.gov once it is operational.
Employers are also permitted to contribute to Trump Accounts, creating a potential new employee benefit. Employer contributions of up to $2,500 per year are allowed and are not included in the employee’s taxable income. These contributions do count toward the child’s $5,000 annual cap. For businesses seeking creative ways to attract and retain employees, especially younger families, this provision opens the door to a new form of family-oriented compensation.
Trump Accounts are often compared to 529 college savings plans, but the two serve different purposes. A 529 plan is designed specifically for education expenses and offers tax-free growth when funds are used for qualified education costs such as tuition, books, and room and board. Trump Accounts, by contrast, are not education-specific. While they function as a savings vehicle during childhood, they are ultimately intended to become a form of retirement account once the child reaches adulthood. This makes Trump Accounts more flexible in terms of ultimate use, but also more restrictive in how funds can be accessed during the child’s early years.
Another key difference lies in control, investment rules, and timing. Most 529 plans allow account owners to choose from a range of investment portfolios and permit withdrawals at any age for qualified education expenses. Trump Accounts, on the other hand, impose strict investment limitations until age 18 and generally prohibit distributions during childhood. In addition, 529 plans allow unused funds to be repurposed for other family members or, under recent law changes, potentially rolled into a Roth IRA within limits. Trump Accounts do not offer that level of flexibility and carry certain permanent restrictions, including a prohibition on Roth conversions. For many families, this means Trump Accounts are best viewed as a complement to, rather than a replacement for, traditional 529 planning.
Investment choices are tightly restricted while the child is under 18. During this growth period, account funds must be invested exclusively in low-cost mutual funds or exchange-traded funds that track broad U.S. equity indexes. The rules prohibit leverage, active trading strategies, and high fees, with annual expenses capped at 0.1 percent.
Distributions are generally prohibited until the calendar year in which the child turns 18, with limited exceptions for technical corrections or in the event of the child’s death. After age 18, the account transitions into a form of traditional IRA and becomes subject to standard IRA distribution rules. Amounts distributed are generally taxable as ordinary income to the beneficiary in the year received, and early withdrawals may be subject to additional tax penalties if taken before retirement age. However, Trump Accounts retain certain permanent restrictions. They cannot be converted to Roth IRAs and cannot receive SEP or SIMPLE IRA contributions, even after the child reaches adulthood. The IRS guidance also outlines detailed reporting and compliance obligations. Trustees must provide annual reports during the child’s minor years showing contributions, sources of funds, and any distributions. After the child turns 18, standard IRA reporting rules apply. The IRS has announced plans for a new Form 4547 and an online portal expected to become available in 2026. Penalties may apply for improper elections or reporting failures, making careful administration essential.
While 529 Plans may provide more flexibility, Trump Accounts provide a structured way to begin wealth accumulation at birth that can complement traditional 529 planning. For employers, they introduce a novel opportunity to provide an employee benefit to young families. As with any new tax-favored program, the rules are complex. Families and business owners considering Trump Accounts should seek professional tax and estate planning advice to ensure these accounts are established and funded correctly and fit into their broader financial strategy.
