It was one of the most talked about aspects of the OBBBA (One Big Beautiful Bill Act) that President Trump signed into law on July 4th, 2025, the creation of “Trump Accounts”, which are specifically designed for children.
Summer will be here before you know it (As I write this, it's 17° this morning in MO, so I wish summer would hurry up, it shouldn’t be this cold in March, but then again, I’m not shoveling a foot of snow, so I’m thankful for that 😊!) and on July 5th these accounts become official.
Let’s dig into the specifics.
What is a Trump Account?
A Trump Account is a new, tax-advantaged way for children to save and invest[2]. These accounts combine features from several existing savings vehicles, creating a structure that is somewhat unique. Here are a few of the key details:
- Can contribute up to $5,000 per year[1, 3].
- Contributions are invested in low-cost U.S. equity funds[1, 2].
- All growth is tax-deferred until distribution[2].
- Upon reaching age 18, beneficiaries can begin taking distributions, but with very specific guidelines[3].
- Taxes on distributions are assessed on a pro-rata basis. This means that the basis (that is, contributions) is distributed tax-free, and earnings are taxed as ordinary income[2].
Let’s put a microscope under each bullet point and examine the finer details.
Contributions to Trump Accounts
The most widely discussed feature of the legislation is the federal government’s $1,000 seed contribution provided for children born between 2025 and 2028[1] who have a Trump Account (meaning an account must be opened to receive it).
Beyond the seed contribution, family members, friends, guardians, and even the child can contribute up to a combined limit of $5,000 per year[1, 3].
Employers, states, and philanthropic organizations may also contribute, but are subject to different limitations[2].
Unlike some savings vehicles, there are no income requirements or limitations to fund an account. All that is required is that the child is 17 or younger and has a valid Social Security number[2, 3]. Only one funded Trump Account is allowed per child[3], so a single account will serve as the destination for all contributions made on the child’s behalf.
Investment Options are Limited
As of today, there is a limited menu of low-cost funds (expense ratios are capped at 0.10%) to invest into that are all designed to track broad U.S. stock market indexes[1, 3].
As long-term investors, there is a lot to like about this structure. Broad index-based funds and ETFs keep costs low and provide exposure to the long-term growth of the stock market. However, this benefit is not without potential shortcomings.
Because investments are limited to U.S. equities, international diversification is unavailable, so families who make significant contributions to these accounts may need to diversify elsewhere within their (or their child’s) broader investment portfolio (e.g., 529 plans).
Additionally, because the accounts are invested entirely in equities, there is currently no ability to reallocate into bonds or other lower-volatility assets as the child approaches age 18, if necessary. It’s possible that future guidance could expand the available investment options.
How Taxes Work on Trump Accounts
One key feature that distinguishes these accounts from custodial accounts such as UGMAs is that investment growth is tax-deferred[2], like a Traditional IRA.
In fact, on January 1st of the calendar year the child reaches age 18, Trump Accounts will generally be governed by the same distribution rules as Traditional IRAs[4]. Under those rules, penalty-free (though not tax-free) distributions can be made for qualified education expenses, a first-time home purchase up to $10,000, and a few other scenarios[3].
When distributions occur, contributions (basis) are returned tax-free while investment gains are taxed as ordinary income[2].
The big benefit of these accounts is the tax-deferral feature, because if funded early and left untouched from childhood until retirement, the compounding potential could be substantial.
For example, $1,000 invested each year from birth to age 18 could grow to more than $1.3 million by age 65, assuming an 8% annual return[7].
How Trump Accounts Compare to Other Child-Savings Vehicles
With these new types of accounts for children, let’s take a look at how they compare to other savings options that children have:
529 Plans
These accounts are designed for education savings and offer broader investment options and tax-free withdrawals for qualified education expenses[5]. For families whose primary goal is saving for college, a 529 plan may be the better option.
Custodial Accounts (UGMA/UTMA)
Custodial accounts offer full investment flexibility but no tax-deferred growth. Investment income may also be subject to the “kiddie tax.”[5]
Roth IRAs for Working Teenagers
Once a child has earned income, a Roth IRA can be powerful because contributions grow tax-free and qualified withdrawals are not taxed[6].
Trump Accounts fall somewhere in between these options. They offer tax-deferred growth and broad market exposure but come with more limited investment flexibility, and distributions (above basis) are ultimately taxed as ordinary income.
A Few Other Notes
Trump Accounts are owned by the minor but managed by a parent or guardian while the child is under age 18. During this period, the assets are generally not accessible to the child[3].
Because the account is owned by the child, families should consider how it may be treated in financial aid calculations[5]. The specific treatment may depend on how future regulations and financial aid rules evolve.
How to Open a Trump Account
You can open a Trump Account by filling out Form 4547[1] or by completing the application online at https://form.trumpaccounts.gov/.
Final Thoughts
For many families, these accounts offer a simple and low-cost way to begin investing in a child’s future. The opportunity to begin their lifetime investing journey when they have many decades of compound interest working for them could make these accounts invaluable in teaching important lessons in long-term investing.
That said, these accounts are not a panacea; they are best viewed as one tool among many. Depending on a family’s goals—such as education savings, long-term wealth building, or tax management—other accounts such as 529 plans, custodial accounts, or Roth IRAs may be a better option[5].
As always, the best approach is to consider your family’s specific circumstances and broader financial strategy.
If you have questions about this topic, please let me know.
As always, stay the course, my friends!
[1]Trumpaccounts.gov; Form 4547; One Big Beautiful Bill Act – for Trump Accounts, see Section 530A
[2]Vanguard
[3]Fidelity
[4]IRS Guidance
[6]Fidelity
[7]Investor.gov ($83.33 per month invested for 18 years compounded at 8% per year = $37,448; $37,448 compounded at 8% for 47 years (from age 18 to 65) = $1.3m)