Trump Accounts

Trump Accounts are a new savings tool for children. Below is summary of the key features, when distributions can be made, the tax consequences of those distributions, and a practical comparison to 529 plans.

Updated Summary

The Working Families Tax Cuts, enacted on July 4, 2025, created new Trump Accounts. These accounts are designed to give children an early start on long-term savings and operate much like a traditional IRA once the child reaches adulthood. A Trump Account is a new type of tax-favored account for a child who has not turned age 18 before the end of the calendar year. Parents, guardians, and other authorized individuals may establish the account for eligible children. Eligible children born between January 1, 2025, and December 31, 2028, are eligible to receive a one-time $1,000 contribution from the federal government.

Annual contributions, including employer contributions, to a Trump Account are generally limited to $5,000 per year, indexed for inflation after 2027. This $5,000 limit does not include the federal $1,000 contribution, qualified rollover contributions, or qualified general contributions.

Employers may contribute up to $2,500 per year to the Trump Account of an employee or an employee’s dependent under a qualifying written employer program, and that amount is excluded from the employee’s gross income and indexed for inflation after 2027. For employers, this may become a new employee benefit similar in concept to education assistance or dependent-care benefits, though it is directed toward a child’s long-term savings.

Withdrawals generally cannot be made before January 1 of the calendar year in which the child turns 18, with limited exceptions. After that point, the account is converts to a traditional IRA, and the traditionally IRA rules generally apply.

When distributions are eventually made, the tax treatment follows traditional IRA principles. Distributions may be taxable to the extent they represent earnings or amounts that were never taxed, including the federal $1,000 contribution, qualified general contributions, and employer contributions that were excluded from the employee’s income. Personal after-tax contributions generally create basis and are not taxed again when distributed. Once IRA rules apply, the account may allow penalty-free distributions for certain qualified higher education expenses or up to $10,000 of first-time homebuyer expenses. Even so, the taxable portion of any such distribution is still subject to income tax.

Once the child turns 18 and the account coverts to an IRA, you may want to evaluate whether a Roth IRA conversion makes sense at that time. A Roth conversion can be attractive if the young adult has little or no taxable income, because the taxable conversion amount may be taxed at a low rate. A key distinction from regular Roth IRA contributions is that an IRA conversion does not require the child to have earned income; earned income limits apply to contributions, not conversions.

Planning Comparison to 529 Plans

529 plans remain education-focused accounts. Qualified 529 withdrawals can generally be tax-free when used for qualifying education costs, including college and certain K-12 expenses. 529 plans also offer a special five-year gift-tax election that can allow larger front-loaded gifts. Trump Accounts do not have that same five-year front-loading rule and carry a much lower regular annual contribution limit. In that sense, a 529 plan remains a strong choice for families focused primarily on education savings.

Trump Accounts may offer broader long-term savings flexibility after age 18 because they transition into the IRA system. That structure can support Roth conversion planning, which is especially valuable when the child has low taxable income. For gift-planning purposes, the 2026 annual gift tax exclusion is $19,000 per recipient. As a result, a $5,000 Trump Account contribution generally should not create a taxable gift, as long as total gifts to that child from the donor remain within the annual exclusion. For many families, the two accounts can work together: a 529 plan for education savings and a Trump Account for long-term, IRA-based flexibility.