Every family looks for ways to give their kids a head start. The Trump Account is the newest tool for doing that, and it works a little differently than most people assume.
What it is
A Trump Account is a new type of retirement account created for children (Yes, I agree that the name is unfortunate. Anyone remember Trump Steaks?) The account functions like an IRA, but it starts years before your child can open a bank account or hold a job. Any child under 18 with a Social Security number qualifies. A parent, legal guardian, adult sibling, or grandparent can open one on the child’s behalf.
The government seed
Children born between January 1, 2025 and December 31, 2028 receive a one-time $1,000 deposit from the federal government to open the account. Families claim this by filing IRS Form 4547, either online, by mail, or with the help of a tax professional. You can still open an account for a child who does not qualify for the $1,000. The account itself is available to any child under 18.
How the money grows
While the account is locked, contributions must stay in a low-cost index fund tracking U.S. stocks, similar to an S&P 500 fund. This restriction protects the account from speculative bets during the years your child has no say in how it is managed.
Who can contribute, and how much
Parents, grandparents, aunts, uncles, and family friends can all contribute to a child’s Trump Account. The combined limit from all of these contributors is $5,000 per year. This is not $5,000 per person. It is one shared pool. If a grandparent contributes $5,000 in a given year, no one else can add anything more that year. Employers can also contribute, up to $2,500 per employee or an employee’s child, and that amount counts inside the same $5,000 cap rather than adding to it.
Why timing matters
Compounding rewards time more than it rewards size. A dollar invested at age five has far more time to grow than a dollar invested at twenty-five. This account gives your child that runway starting at birth, which is an advantage no prior generation of savers had access to in this exact form.
What happens at 18
On January 1 of the year your child turns 18, the account automatically converts into a traditional IRA. The lock-out period ends, and standard IRA rules take over. Your child can leave the money invested, or begin using it. Withdrawals before age 59 and a half are generally taxed as ordinary income and carry a 10 percent penalty, though a few exceptions exist, including a first home purchase, higher education costs, and birth or adoption expenses.
How it compares to other savings tools
A 529 plan remains the strongest vehicle for education-specific savings, since qualified withdrawals are entirely tax free. A custodial Roth IRA offers more flexibility, since your child can withdraw their own contributions at any time without tax or penalty, but it requires the child to have earned income. A Trump Account sits in between. It requires no earned income, accepts contributions from almost anyone in your child’s life, and gives your child full control at 18, for better or worse.
We think about accounts like this the same way we think about every account we manage, in the context of your family’s full financial picture. If you have a child or grandchild under 18, let’s discuss if it makes sense to set up an account.
Your Market Analyst,
Tony
Technical Notes
Eligibility. Any U.S. child under 18 with a valid Social Security number qualifies for a Trump Account. The $1,000 federal contribution applies only to children born between January 1, 2025 and December 31, 2028.
Opening deadline. Accounts must be opened before December 31 of the year the child turns 17. Missing this window closes the ability to open one permanently.
Filing mechanism. Form 4547, Trump Account Election(s), is used to open the account and elect the $1,000 government contribution. It can be filed online at irs.gov/trumpaccounts, by mail, or through a tax professional. Filing with a tax return is typically faster, since the IRS can match the child’s information against the return.
Contribution limits. The combined annual limit from all individual contributors is $5,000. Employer contributions are capped at $2,500 per employee or dependent and count within that same $5,000 limit rather than adding to it. Contributions above the limit incur a 6 percent excise penalty each year until withdrawn. The $1,000 government seed, charitable contributions, and qualified rollovers do not count toward the $5,000 cap.
Investment restrictions. During the growth period (until age 18), funds must remain in low-cost, broad-based U.S. equity index funds with expense ratios below 0.10 percent. This restriction lifts entirely once the account converts to a traditional IRA.
Tax treatment of contributions. Individual contributions are made with after-tax dollars and are not deductible, similar to a Roth IRA. However, unlike a Roth, the $1,000 government seed, employer contributions, and all investment growth are taxed as ordinary income when withdrawn. Only the portion contributed directly by individuals avoids taxation on the way out.
Gift tax treatment. Contributions from individuals are treated as gifts to the child for federal gift tax purposes. Earlier guidance raised concern that these contributions might not qualify for the annual gift tax exclusion due to a drafting gap in the original legislation, which would have required donors to file Form 709 even for modest contributions. The IRS has since issued Revenue Procedure 2026-25, establishing a safe harbor. Under this safe harbor, qualifying contributions are treated as completed gifts eligible for the annual exclusion, provided all of the following hold for that calendar year: the contributor is an individual, their only taxable gifts that year are cash contributions to one or more Trump Accounts, each contribution is made before the child turns 18, total gifts to that child do not exceed the annual exclusion amount ($19,000 in 2026), the contributions do not trigger gift or GST tax liability after available credits, and the donor has no other reason to file Form 709 for that year. The safe harbor can fail if a donor makes other large gifts to the same child in the same year, contributes non-cash property, or has an unrelated reason to file a gift tax return.
Withdrawal taxation after 18. Withdrawals are taxed based on their source. Amounts from individual after-tax contributions come out tax free. Amounts from the government seed, employer contributions, and investment growth are taxed as ordinary income. Withdrawals before age 59 and a half are also subject to a 10 percent early withdrawal penalty unless an exception applies, including first-time home purchase (up to $10,000), higher education expenses, birth or adoption costs (up to $5,000), or disability.
Reporting forms. Form 5498-TA reports annual contributions by source. Form 1099-R reports withdrawals once the child reaches 18 and begins taking distributions.
Sources: Trumpaccounts.gov, Thompson Reuters, The American College of Trust and Estate Counsel