Understanding Trump Accounts: A New Way to Invest for the Next Generation One of the most talked-about provisions in the One Big Beautiful Bill Act[1] is the creation of a new type of investment account for children known as “Trump Accounts.” At first glance, this may feel like just another new account with a lot of moving parts. That’s understandable. There are several components to consider, and much of the information circulating right now is incomplete or overly simplified. We’ve been getting a lot of questions about these accounts (for both children and grandchildren), so I thought it would be helpful to outline how they work, what families should know about their tax treatment, and how they may fit into a broader financial plan. This note is a bit longer than usual, but I wanted to make sure I addressed the questions I hear most often. 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 basis (that is, contributions) is distributed tax-free and earnings are taxed as ordinary income[2].
This isn’t just about a new type of account. It’s about starting earlier, allowing compounding to work over decades, and being intentional about how wealth is built for the next generation. 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. 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, though they 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 account is allowed per child[3]. There Are Limited Investment Options At this time, there is a limited menu of low-cost funds to invest in, 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. Low-cost, index-based investing has historically been an effective way to build wealth over time. However, this benefit is not without trade-offs. Because investments are limited to U.S. equities, international diversification is not available. Additionally, there is currently no ability to shift into more conservative investments as the child approaches age 18. That flexibility may come later, but for now, it is something to be aware of. How Taxes Work on Trump Accounts One key feature that distinguishes these accounts from custodial accounts is that investment growth is tax-deferred[2], similar to a Traditional IRA. Beginning in the year the child turns 18, the account is generally governed by rules similar to Traditional IRA distributions[4]. Penalty-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 are returned tax-free, while investment gains are taxed as ordinary income[2]. The real advantage here is the power of compounding over time. If funds are invested early and left untouched, the long-term impact can be significant. How Trump Accounts Compare to Other Child-Savings Vehicles 529 Plans Designed for education savings with tax-free withdrawals for qualified expenses[5]. Custodial Accounts (UGMA/UTMA) Offer flexibility but do not provide tax-deferred growth and may be subject to the kiddie tax[5]. Roth IRAs for Working Teenagers Powerful once a child has earned income, offering tax-free growth and withdrawals[6]. Trump Accounts fall somewhere in between. They offer tax-deferred growth and simplicity but come with limitations in flexibility. A Few Other Notes Trump Accounts are owned by the child but managed by a parent or guardian until age 18[3]. Because the account is owned by the child, it may impact financial aid considerations depending on how future rules evolve[5]. How to Open a Trump Account You can open a Trump Account by filling out Form 4547[1] or applying online at: https://form.trumpaccounts.gov/ | 
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May 01, 2026
