Trump Accounts Part 1:  What are they and how do they work?

This is part 1 in a 3-part series on Trump Accounts.
In summary, Trump Accounts are free money for children born between January 1, 2025 and December 31, 2028.

• What’s going to happen to these accounts after that?
• Will these accounts be hard to keep up with?
• Are there a lot of rules surrounding the funding and use of these accounts?

The bottom line is that Trump Accounts are a long shot for those who qualify.  If you stick to the government’s seed money, you have nothing to lose, and if something goes wrong, you didn’t have the $1,000 to start with … no harm, no foul.

Now, let’s get into the details …

What are Trump Accounts?

Trump Accounts (sometimes referenced by Section 530A of the tax code) are a new type of tax-advantaged savings/investment account for children in the United States created by federal law in 2025 as part of the One Big Beautiful Bill Act signed into law by President Donald Trump.

What Trump Accounts Are

• Long-term investment accounts for children under age 18, similar to a custodial traditional Individual Retirement Account (IRA) but with some unique rules.
• While the name includes “Trump,” it refers to the law that created them—not a private bank product from Donald Trump.
• When the child reaches age 18, the account functions like a traditional IRA (subject to IRA rules).

 Government Seed Contribution

• The federal government offers a one-time $1,000 contribution into a Trump Account for U.S. citizen children born between January 1, 2025 and December 31, 2028, if an account is established for them. This is a temporary pilot program.

Who Can Open and Use Them

• Parents or legal guardians open a Trump Account on behalf of a child with a Social Security number who is under 18.
• The child is the owner of the account, but adults manage it until age 18.

How Contributions Work

• Anyone can contribute: parents, guardians, relatives, employers, charities, etc., up to $5,000 per year per child (government seed does not count toward this limit) until the child is 18. These contributions are made with after-tax dollars meaning there is no federal deduction for the contributor.
• Employer contributions are allowed up to $2,500 per year as part of that $5,000 limit. Employer contributions are generally excluded from the employee’s gross income. Programs may include direct employer contributions or voluntary pre-tax employee contributions through salary reduction.
• The Treasury’s $1,000 seed money and any philanthropist gifts are contributed before taxes are paid. These pre-tax funds will be subject to regular income taxes upon withdrawal, according to the Treasury guidance.
• Contributions grow tax-deferred and are invested in low-cost U.S. stock index funds.

Access and Use

Generally, no withdrawals are allowed before the child turns 18. After turning 18, the account converts into a traditional IRA.

After Age 18 but Before Age 59½ –

• Withdrawals are taxable as ordinary income. Any amount you take out is included in income (except basis on after-tax contributions).
• A 10% early-withdrawal penalty generally applies if you take money out before age 59½, just like a traditional IRA.
• However, there are exceptions that can let you avoid the 10% penalty even before age 59½ (but still pay ordinary income tax), including some of the same exceptions that apply to IRAs, such as:
  • Qualified higher education expenses
  • First-time home purchase
  • Medical or disability expenses
  • Other IRS-allowed exceptions that apply to traditional IRAs

After Age 59½ –

• Withdrawals are still taxed as ordinary income, but no 10% early-withdrawal penalty applies once you’re 59½ or older (consistent with normal IRA rules).

Practical Example*

• Let’s say over time:
  • Government Seed Contribution: $1,000 (pre-tax)
  • Employer Contributions: $7,000 (pre-tax)
  • Employee Salary Deferrals: $7,000 (pre-tax)
  • Other Contributions: $35,000 (after-tax establishes basis)
  • Account grows to: $120,000
• There is:
  • $35,000 basis (non-taxable basis)
  • $85,000 earnings (taxable when withdrawn)
• If $12,000 is withdrawn early under normal IRA rules:
  • Roughly 29% would be non-taxable basis
  • Roughly 71% would be taxable earnings
  • (Using a pro-rata calculation)

*This is a hypothetical example and is not representative of any specific situation. Your results may vary.

How They Compare to Other Accounts

• Unlike 529 college savings plans, which are used chiefly for education, Trump Accounts are broader investment accounts focused on long-term saving and retirement, but they can also be used for major life expenses.
• They are more like a custodial IRA for kids than a standard bank savings account.

Please note that information regarding Section 530A (Trump) accounts is still evolving and is not final. To ensure you receive the most updated information, please refer to IRS.gov or Trumpaccounts.gov.