While the ink still dries on the One Big Beautiful Bill Act (OBBBA), we are learning more each day about Trump accounts. These new accounts are essentially an IRA-like vehicle targeted toward children. What we do know is that they will be seeded with $1,000 for children born between 2025 and 2028. Let’s walk through the mechanics of the program, how to access it, contribution limits, potential gift tax issues, investment rules, lock-ups, distributions, and what happens at age 18.
Getting the $1,000 Federal Seed
To be eligible for the $1,000 federal seed, a child must be born between January 1, 2025, and December 31, 2028. Be aware: you must opt in by filing IRS Form 4547. An online opt-in through trumpaccounts.gov is expected to come online in mid-2026. Behind the scenes, the Treasury Department will be verifying claims for the contribution, and activation notices should start going out around now (May 2026). The $1,000 itself will not be deposited before July 4, 2026.
So, who can make the election for these accounts? There is a specific hierarchy. First up is a legal guardian, then a parent, then an adult sibling, and finally a grandparent. Once the election is complete, $1,000 will be deposited into the child’s new Trump account. This contribution is considered to have no basis, which in plain terms means it will be fully taxable as ordinary income when distributed.
Who Can Contribute, and How Much
Each account is funded with $1,000 from the government to start, but who else can contribute, and how much?
Individuals (parents, grandparents, adult siblings, or anyone else) can contribute up to $5,000 in aggregate per year, indexed for inflation beginning in 2028. Employers may also contribute to the accounts of teenage employees and the dependents of employees, up to $2,500 per year, and that $2,500 counts toward the $5,000 individual limit. Tax-exempt organizations and governmental bodies may also contribute. Unlike individuals and employers, these bodies have no cap. This is how the proposed Michael Dell and Ray Dalio foundation gifts will work.
Contributions for a given year must be made by December 31. Unlike with an IRA, prior-year contributions are not allowed, and there is no earned income requirement during the growth period.
The Gift Tax Wrinkle
As of right now, a contribution to a child’s Trump account does not qualify for the $19,000 annual gift tax exclusion. This is because the child doesn’t have access to the money yet. As a practical matter, a grandparent making a sizable contribution may need to file IRS Form 709, the form used when making a gift that exceeds the annual exclusion. Congress carved 529 contributions out of this rule years ago but did not do so for Trump accounts in OBBBA. We believe this may change in future legislation, but for now, it makes sense to file the form.
Investment Restrictions During the Growth Period
Within the Trump account, you may only select from an “eligible investment.” This typically means low-cost index mutual funds or ETFs tracking larger U.S. companies. The IRS defines “low-cost” as a fund with total annual fees and expenses of less than 10 basis points. Sector or industry-specific indexes are excluded. You can see they’re installing bumper rails on these investments to make sure they are invested prudently. This restriction lifts in the year the child turns 18. After that, the account can hold anything a typical IRA can, with a few exceptions (collectibles, life insurance, and S-corporation stock).
The Lock-Up: Limited Reasons to Withdraw
Trump accounts are geared toward long-term investing, and there are strict rules around how and why funds may be withdrawn during the growth period. Permitted withdrawals are generally limited to the following situations:
- To correct or remove excess contributions.
- To move the account to a different Trump account custodian.
- To transfer the balance to a disabled child’s ABLE account in the year they turn 17.
- Upon the death of the child.
Unlike many other retirement-related accounts, there are no “hardship” distributions like you’ll find in other retirement plans.
How Distributions Are Taxed
The taxation of Trump accounts can be confusing. Contributions from parents, grandparents, and other individuals are made with after-tax dollars, so they create basis. That basis comes out tax-free. The growth on those contributions, however, is taxable. Contributions from the federal government, employers, and tax-exempt or governmental bodies have no basis and are fully taxable at the child’s prevailing tax rate when withdrawn.
To make things even more interesting, the pro-rata rule applies to all withdrawals. That means every distribution from the account is partially tax-free and partially taxable, which should help keep tax professionals in business for years to come.
What Happens at Age 18
At age 18, these accounts largely behave like traditional IRAs. Future contributions require earned income, and any contribution counts toward the annual traditional IRA contribution limit. The account also becomes eligible for Roth conversion, which can be a smart move if the child is in a low tax bracket, as they’re likely to be.
Should You Contribute Beyond the $1,000?
In our view, taking the free $1,000 federal contribution makes sense. Contributing beyond that is where families should be more skeptical. For one, these accounts may come with elevated administrative costs. We’ve seen this play out with other newer account types like Health Savings Accounts. Second, if a child has earned income, a custodial Roth IRA is almost always the better destination for additional dollars, since the child is in a low bracket and has decades of tax-free growth ahead. If a family has already maxed out a 529 plan and a custodial Roth and is still looking for tax-advantaged space, a Trump account can fit in as a supplemental vehicle.
Questions About Trump Accounts?
As details surrounding Trump accounts continue to evolve, you may understandably have questions about how these rules apply to your specific situation, especially when it comes to contribution strategies, taxes, gifting considerations, and long-term planning opportunities. If you would like to discuss whether a Trump account fits into your family’s broader financial plan, our team is available as a resource. Please contact our team of CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals for a complimentary discovery call at 631.218.0077, or click here. We would be happy to show you how our financial planning process can help you stay on track and achieve your financial goals. You can also send us a message directly.
R.W. Rogé & Company, Inc. is an independent, fee-only financial planning and investment management firm serving clients locally and virtually across the country, with Long Island, New York, and Beverly, Massachusetts office locations. R.W. Rogé & Company, Inc. was founded on a “client first” culture and proudly commits to acting in your best interest as a fiduciary. We have helped clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, as well as our process, explore our detailed overview of services and approach.
