A new type of child savings account, called a Trump Account, was recently introduced under federal law. The IRS has released initial guidance, and while more details are still coming, here’s a simple overview of what families should know now.
What Is a Trump Account?
A Trump Account is a special savings account set up for a child under age 18 with a Social Security number. It is structured similarly to an IRA, but it has its own rules while the child is growing up.
During the early years:
- Investment options are limited to broad, low-cost index funds.
- Withdrawals generally aren’t allowed.
- The goal is long-term, tax-deferred growth.
Once the child reaches adulthood, the account can be rolled or transferred to an IRA or other eligible retirement plan. If the funds are withdrawn, the amount of the funds not related to the after tax contributions will be subject to income tax. The 10% early withdrawal penalty could apply if the funds based on the age and use of the withdrawal.
A Special Benefit for Babies Born 2025–2028
If your child is born between January 1, 2025 and December 31, 2028, they may qualify for a $1,000 government contribution even if you don’t contribute anything yourself.
This Pilot Program funding is designed to encourage early saving. Families with newborns during this time may want to consider setting up an account simply to receive this benefit.
How Do You Set One Up?
While additional guidance is still expected, the general process includes:
- Confirm the child is eligible (under 18 with a Social Security number).
- Have a parent or authorized adult formally elect to establish the account. This can be done with the Form 4547 with the 2025 tax return or completing the form at https://trumpaccounts.gov/ .
- Complete the account activation process once approved.
- Make contributions, if desired (subject to limits and timing rules). No contributions can be made until July 4, 2026.
Potential Benefits
- Tax-deferred growth
- Possible $1,000 government contribution (for eligible birth years)
- Encourages long-term saving from an early age
Things to Consider
- Investment choices are limited.
- Funds generally can’t be accessed before adulthood.
- More IRS guidance is expected, and details may evolve.
- Other options (like 529 plans or Roth IRAs) may be better depending on your goals.
A Quick Reminder
Tax laws change. This is a new program, and future legislation or IRS regulations could modify how these accounts work. As with any long-term savings decision, it’s important to consider the full picture.
If you’re welcoming a child between 2025 and 2028 or want to explore whether this new account makes sense for your family, we’re happy to help you think through your options.
