Some tools have special grips or unique counterbalances; this one comes with $1,000.
Rogers, Arkansas – June 26, 2026 – The 250th anniversary of our nation will be celebrated in the coming days. A new type of investment account is being introduced with the goal of helping the next generation build wealth. Starting July 4th families will have a new type of tax-advantaged account designed specifically for their children. Trump Accounts.
Created by the One Big Beautiful Bill Act (“OBBBA”), Trump Accounts, are tax-deferred investment accounts that can be opened from birth. Prior to the OBBBA, the only accounts designed for children were the 529 Plan (education focused) and the UTMA/UGMA taxable custodial accounts. Understanding how these Trump accounts are intended to work and how they differ from the existing savings options is necessary to determine if you should open one for the young people in your life.
Fidelity describes the Trump Accounts as a starter IRA for minors. A traditional IRA generally is funded with earned income, your own or, in the case of a spousal IRA, your working spouse’s. Trump Accounts bypass the earned income requirement, allowing parents, grandparents, and even business owners the opportunity to contribute on behalf of the child. Custodians for the child’s Trump Accounts must adhere to specific rules until December 31st of the year the child turns 18. After that point, most of these special rules no longer apply to the Trump Account, and traditional IRA rules generally apply (investor.gov).
As a part of the OBBBA, U.S. citizens born, with a valid Social Security Number, between January 1, 2025 and December 31, 2028, will receive a one-time $1,000 seed investment from the federal government. To claim the $1,000, a parent or guardian files IRS Form 4547 or registers at trumpaccounts.gov. It’s important to mention, a child does not have to be born within this window to have an account. Children born outside the birth window can still open Trump Accounts as long as they have not turned 18 before the end of the year the election is made. They simply will not receive the $1,000.
Contributions open on July 4, 2026. As mentioned, individuals such as parents, grandparents, and other family members can contribute. Contributions can come from employers, governments, and charitable organizations as well. The combined annual limit is $5,000 per child in 2026, indexed for inflation after 2027. It’s worth noting, employers can contribute up to $2,500 per year for their employees’ children. Furthermore, that contribution is not included in the employee’s taxable income. Contributions from charitable organizations and governments do not count against the $5,000 cap.
Thoughtful planning helps determine if you should open a Trump Account for your child or grandchild. The $1,000 seed investment from the federal government is hard to ignore. Taking advantage of that is like taking advantage of the employer match you may receive in your 401(k) plan. If they’re giving you free money, take it. So, for the children outside the birth window, does it make sense? The notorious financial planner answer to all questions is, it depends.
Contributions from individuals (think parents, grandparents, or other family members) to Trump Accounts are made with after-tax dollars and create “basis.” The $1,000 government seed, employer contributions, and charitable contributions do not create basis. When funds are withdrawn from a “tax-deferred” account the basis comes out tax-free. The growth and non-basis contributions are taxed as ordinary income. The basis is important to keep track of, because basis should not be taxed. It’s like the concept of double jeopardy – if the dollars have been taxed once, they shouldn’t be taxed again.
The Center for Retirement Research at Boston College shared a clarifying example in their piece from March. Imagine an account funded with $4,000 from parents and $1,000 from the government grows to $40,000 at retirement. Only the $4,000 basis comes out tax-free. The other 90 percent of any distribution is taxable income. If the account owner withdraws the funds before age 59½ there would be an additional early distribution penalty, similar to a traditional IRA. The penalty can be waived but only for specific scenarios such as first home purchase, birth and adoptions costs, or disaster recovery expenses. The distribution is still subject to income tax even when the penalty is waived. The IRS provides a full list of exceptions here.
One consideration which can carry real weight for families exploring Trump Accounts is who has control. Prior to age 18, a parent or legal guardian is deemed as the custodian of the account. At age 18, full control shifts to the child. They can choose to take distributions, accept the tax and any penalty, and spend the rest however they wish. On trumpaccounts.gov there is a section which illustrates the hypothetical growth of a Trump Account. Depending on the assumptions used, a balance could potentially grow to become a five or six figure sum by age 18.
On the flip side there is a planning opportunity worth considering. Once the special Trump Account features are sunsetted (12/31 of the year the child turns 18), the young adult could convert the dollars in their Trump Account into a Roth IRA. This is a common planning conversation planners have with early retirees and individuals who find themselves in low-income tax years with large tax-deferred account balances. If a Trump Account grew to be 6 figures, converting over multiple years could be a way to smooth out the tax bill. Creating a plan for 18 years from now may seem counter intuitive but ask yourself when is the best time to plant an oak tree? As James Stowers Jr., founder of American Century Mutual Funds, was fond of saying the best time was 20 years ago and the second-best time is now.
Identifying your goals and understanding the tools to accomplish them is no small feat. Trump Accounts are an impressive tool but not every assembly job requires a Philips Screwdriver (the cross one). If funding your child’s college education is a goal for you, a 529 savings plan is probably the right tool for you. If handing your child a check for $100,000 at the age of majority, (depends on your state of residence) the UTMA/UGMA custodial account may be better suited for you. My understanding is the overall goal of the Trump Accounts is to provide young people the opportunity to gain financial literacy. A cause I’m passionate about.
The way I see it, young families should take advantage of the $1,000 seed investment for their children born between January 1, 2025 and December 31, 2028. Small business owners who are looking to offer a competitive advantage for employees, a Trump Account contribution program may be the solution. Larger corporations may struggle with the complexities surrounding the identification and contribution processes.
If you fall outside of those two demographics, it depends.
As always, our goal is to provide clarity on the opportunities ahead through a comprehensive approach to wealth management. If you are struggling with what tools you should be using in your financial plan, reach out. I’m happy to discuss your situation in more detail.
