You may have heard about Trump Accounts, a new type of tax-advantaged savings account that became available on July 4, 2026. They were created to give families a head start on long-term savings for their children.
Each one functions much like a retirement account that can be opened the day a child is born. If you have a child under 18, they’re worth understanding. And if you have a child born between 2025 and 2028, the federal government will seed the account with a one-time $1,000 contribution, which makes them especially worth a look.
How they work
A Trump Account is a tax-advantaged investment account established for a child under age 18. Contributions can total up to $5,000 per year, a limit that will be indexed for inflation over time. An employer may contribute up to $2,500 of that amount on behalf of an employee’s child. The funds are invested in a low-cost fund that tracks a broad U.S. stock index, and any growth is tax-deferred while the account is in its growth phase. Unlike a traditional retirement account, the child does not need to have earned income in order to contribute. This removes the usual barrier to saving for a child this young.
For children born between 2025 and 2028, the Treasury will deposit a one-time $1,000 contribution to start the account. This federal seed money does not count toward the annual $5,000 limit.
Tax treatment
Contributions are made with after-tax dollars and are not tax-deductible, unlike contributions to a traditional IRA. Investment growth is tax-deferred during the years before the child turns 18. Beginning in the year the beneficiary turns 18, the account is generally treated as a traditional IRA. Withdrawals are taxed as ordinary income, and amounts taken before age 59½ are subject to a 10% early-withdrawal penalty on the taxable portion unless an exception applies.
It’s worth emphasizing that Trump Accounts are not a replacement for 529 college savings plans. A 529 remains the more appropriate vehicle for education expenses, and the two can work together as part of a broader plan.
Who can contribute
Contributions are not limited to a child’s parents. Grandparents, relatives, friends, and others may all contribute, subject to the same combined $5,000 annual limit per child. Certain contributions from employers, governments, or charitable organizations may be treated separately from that limit.
A planning opportunity: converting to a Roth
Once the beneficiary reaches age 18, it may be possible to convert the account into a Roth IRA, allowing future growth to accumulate tax-free. A conversion has tax consequences, and it is often most advantageous early in a young person’s career, when income and tax rates tend to be lower. Because of that, the timing matters. We’re happy to walk through whether and when a conversion makes sense for your family.
A note on recordkeeping
These accounts carry basis-tracking rules that are easy to get wrong. Contributions from individuals create a basis, while the federal seed and certain employer or charitable contributions do not. Careful records are needed to avoid your child being taxed twice on the same dollars down the road. This is something we can manage on your behalf.
If you’d like to discuss whether a Trump Account is a good fit for your family, please reach out to our team. We’re glad to help you evaluate the options and set one up correctly.
