The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is a sweeping piece of tax legislation that not only extends and expands many provisions of the 2017 Tax Cuts and Jobs Act, but also introduces several new initiatives aimed at supporting American families and encouraging long-term savings. Among its most headline-grabbing features is the creation of “Trump accounts”—a new tax-deferred investment account for children under 18, with a special pilot program for babies born between 2025 and 2028. Here’s what parents, guardians, and anyone interested in the future of family finance should know about this innovative program.
What Are Trump Accounts?
Trump accounts, established under new
section 530A
of the Internal Revenue Code, are tax-deferred investment accounts designed for minors. The program’s most notable feature is a government-funded pilot: every U.S. citizen child born from 2025 through 2028 is eligible for a $1,000 initial contribution from the federal government. This “seed money” is intended to give every eligible newborn a head start on building wealth and financial security.
Eligibility and Opening an Account
To open a Trump account for a child, the following requirements must be met:
- The child must be under 18 at the time the account is established.
- The child must have a Social Security number issued before the account election is made.
- For the $1,000 pilot program contribution, the child must be a U.S. citizen born between January 1, 2025, and December 31, 2028.
Only one Trump account can be established per child. The election to open an account can be made by a parent, guardian, or other eligible person, and for 2026, the IRS will provide both a paper form (Form 4547) and an online portal for account setup.
How Do Contributions Work?
- Annual Contribution Limit: Up to $5,000 per year can be contributed to a Trump account for each eligible child until they turn 18. This limit will be indexed for inflation starting in 2027.
- Who Can Contribute: Parents, guardians, relatives, the child themselves, employers, and even charitable organizations can contribute. Employers may contribute up to $2,500 per year per child of an employee, and these employer contributions are not treated as taxable income to the parent or guardian.
- Special Contributions: In addition to the government’s $1,000 pilot program deposit, large philanthropic gifts (such as the $6.25 billion pledge from Michael and Susan Dell) may result in additional contributions to each account .
Investment Rules
Funds in Trump accounts must be invested in mutual funds or exchange-traded funds (ETFs) that track the S&P 500 or similar broad-based U.S. equity indexes. The investments:
- Must be diversified and primarily composed of U.S. companies.
- Cannot use leverage (borrowed money).
- Must have annual fees and expenses of no more than 0.1% of the account balance.
- Cannot be industry- or sector-specific indexes, but market capitalization-based indexes are allowed .
The account trustee (the financial institution managing the account) is responsible for ensuring compliance with these investment restrictions.
Withdrawals and Distributions
- No Withdrawals Before Age 18: Funds cannot be withdrawn for any reason before the child turns 18. There are no hardship or early withdrawal exceptions.
- Rollover to ABLE Account at Age 17: When the beneficiary turns 17, the entire balance can be rolled over to an ABLE account (a tax-advantaged savings account for individuals with disabilities) if desired.
- After Age 18: Once the child turns 18, the Trump account is treated like a traditional IRA. Distributions are taxed as ordinary income, not at capital gains rates. Early withdrawals (before age 59½) are generally subject to a 10% penalty, with exceptions for higher education expenses, disability, domestic abuse, natural disaster, a first-time home purchase (up to $10,000), or the birth of a child ($5,000).
- No Required Minimum Distributions: There is currently no required minimum distribution (RMD) for Trump accounts, allowing funds to grow tax-deferred indefinitely.
What Happens If the Child Dies Before 18?
If the beneficiary dies before reaching 18, the account ceases to be a Trump account, and the funds are included in the gross income of the person who inherits the account.
Reporting and Administration
- Trump accounts are not subject to IRA reporting requirements before the beneficiary turns 18, but they are subject to special reporting under section 530A(i).
- The IRS and Treasury will select one or more financial institutions to serve as trustees for the initial accounts, and additional guidance on trustee selection and administration is expected.
How Do Trump Accounts Compare to Other Savings Vehicles?
- 529 Plans: 529 college savings plans offer tax-free withdrawals for qualified education expenses, while Trump accounts offer only tax deferral (not tax-free) for distributions, even if used for education.
- Roth IRAs: Roth IRAs provide tax-free withdrawals of both contributions and earnings (subject to certain conditions), but require the account holder to have earned income. Trump accounts do not require the child to have earned income, but distributions are taxed as ordinary income.
- Traditional IRAs: After age 18, Trump accounts function similarly to traditional IRAs, with tax-deferred growth and ordinary income tax on withdrawals.
Policy Goals and Criticisms
The Trump accounts program is intended to promote long-term savings, financial literacy, and wealth-building from birth. Supporters argue that the accounts will help narrow opportunity gaps and give every child a stake in the American economy. Critics, however, question whether the program will disproportionately benefit wealthier families who can afford to make additional contributions, and whether the administrative complexity will limit participation among lower-income families.
Key Takeaways for Parents of Babies Born in 2025
- Every U.S. citizen baby born in 2025 is eligible for a $1,000 government-funded Trump account, provided an election is made and a Social Security number is obtained.
- Additional contributions can be made by family, employers, and others, up to $5,000 per year.
- Funds are invested in low-cost, diversified U.S. equity index funds and cannot be accessed until the child turns 18.
- After age 18, the account operates like a traditional IRA, with tax-deferred growth and ordinary income tax on withdrawals.
- The program is new, and further IRS and Treasury guidance is expected on implementation details.
Conclusion
The Trump accounts program is a bold experiment in universal child savings, blending elements of retirement accounts, college savings plans, and the “baby bonds” concept. For parents of babies born in 2025, it offers a unique opportunity to jumpstart their child’s financial future with a government-funded investment and the potential for additional contributions from family, employers, and philanthropists. As with any financial planning tool, it’s important to consider how Trump accounts fit into your overall strategy and to stay tuned for further guidance as the program rolls out.
