The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has ushered in a new era of tax reform. One aspect of the OBBBA that has been in headlines and on the minds of many American families recently are the new “Trump Accounts.” While accounts such as 529 plans and UGMA/UTMA remain important ways to save for a child’s future, the Trump Account serves a different purpose and deserves attention in a family’s financial plan. There are several details regarding tax treatment and specific custodians that have not yet been finalized; however, based on the IRS Notice 2025-68, this is a solid starting point for review.
Here is a breakdown of how these accounts work, and who benefits.
Eligibility & Availability
- General Eligibility: Any U.S. citizen who has not reached age 18 by the end of the tax year.
- Pilot Program: U.S. citizens with a valid Social Security Number born between January 1, 2025 and December 31, 2028, are eligible for a one-time $1,000 federal deposit.
- Timeline: Enrollment is currently open for 2026, though account funding will not begin until after July 4, 2026.
Contributions
- Federal Deposit: The U.S. Government provides a $1,000 pilot program deposit for eligible children.
- Private Contributions: Made with after-tax dollars by parents, guardians, grandparents, or friends. The maximum annual private contribution is $5,000 (indexed for inflation).
- Employer Contributions: Limited to $2,500 annually per employee (pre-tax). If you have multiple children, that $2,500 total must be split between their accounts. These funds do count toward the child’s $5,000 annual limit.
- First-Year Total: For eligible children in 2026, the total can reach $6,000 ($1,000 federal seed + $5,000 private/employer funds).
- Exemptions: "Qualified General Contributions" from 501(c)(3) organizations or government entities (targeted by ZIP code or DOB) are exempt from the $5,000 annual limit.
- Tax Impact: Contributions do not offer a tax deduction and do not affect standard IRA contribution limits for the donor.
“Growth Phase” (Under Age 18)
- Tax Treatment: Investments grow tax-deferred.
- Approved Assets: During the "growth phase" (under age 18), funds must be invested in Treasury-approved, low-fee ETFs or mutual funds that track U.S. stock indexes.
- Accessibility: Funds are locked and cannot be accessed for any reason until the child reaches age 18.
Withdrawals (After Age 18)
- Account Transition: The account essentially converts to a Traditional IRA.
- Contribution Rules: Standard Traditional IRA limits apply. The beneficiary must have earned income to continue contributing up to the $7,500 limit.
- Withdrawal Rules: Standard Traditional IRA rules kick in. Withdrawals before age 59½ are generally subject to a 10% penalty plus ordinary income tax.
- Exceptions: Penalty-free (but still taxable) withdrawals are permitted for qualified higher education, first-time home purchases (up to $10,000), and other standard IRA exceptions.
Enrollment Process
- Tax Filing: Establish the account by filing IRS Form 4547 with 2025 tax returns or go through the link below.
- Pilot Program: The "Pilot Program" box must be checked on the form to claim the $1,000 federal deposit.
- Activation: The Treasury will send activation packets in May 2026 to finalize the account setup.
- Online Portal: Enrollment is also available at https://form.trumpaccounts.gov/.
Strategic Thoughts
The Trump Account provides a unique opportunity to set a child up for tax diversification and begin filling their “after-tax” bucket from an early age.
A strategy that is worth looking into would be converting the Trump Account to a Roth IRA once the child turns 18. The child’s earned income level will likely be low or even non-existent allowing them to convert the entire balance at a 0% or 10% tax rate. If you would like to discuss how this approach fits into your families financial plan, we are always happy to continue the conversation.