Understanding Trump Accounts for Children: A Strategic Opportunity for Families

The One Big Beautiful Bill Act, enacted July 4, 2025, introduced significant changes to the tax landscape. Among its 1,000+ pages lies a provision that warrants serious consideration for families engaged in comprehensive wealth planning: Trump Accounts for children.

Introduction to Trump Accounts

Effective July 4, 2026, Trump Accounts are designed to provide tax-advantaged growth for minors and foster a culture of financial independence and responsibility.

Under this program, qualified account holders born between January 1, 2025 and December 31, 2028 are eligible for a one-time $1,000 federal contribution into a Trump Account. In addition to this initial seed, parents, relatives, and even employers can make contributions. These contributions will be invested and grow tax deferred.  Upon the child’s 18th birthday, they can take distributions without penalty for limited purposes such as education costs or a first-time home purchase. Withdrawals for any purpose aren’t possible until the child reaches retirement age, 59.5.

Contribution Limits and Investment Options

Trump Accounts are structured with clearly defined contribution limits. Parents, relatives, and others may contribute up to $5,000 per year per child, while employers can add up to $2,500 annually, creating the potential for a combined $7,500 in annual contributions. By integrating Trump Accounts into employee benefits packages, companies can promote both workforce loyalty and financial literacy, enhancing overall organizational value.  Contributions are voluntary beyond the initial federal seed, meaning families and employers can adjust contribution levels in response to market conditions, personal liquidity, and other financial priorities.

Contributions to Trump Accounts will be invested in a diversified U.S. stock index fund, designed to capture long-term market growth. As we approach the implementation of these accounts in July of 2026 we will know more details.  For now, we know that the investment is limited to U.S. equities and must have annual fees less than .1%.  The investment in a U.S. stock index fund exposes the accounts to market volatility, meaning that balances can fluctuate based on economic cycles. This risk is typical of equity-based investment vehicles and requires families to adopt a long-term perspective, focusing on compounded growth over years rather than short-term performance.

Taxation and other Considerations

It’s important to note that contributions are not tax deductible and grow tax deferred. When withdrawals are taken, contributions are generally withdrawn tax free (with the exception of $1,000 government seed or any employer contributions). Earnings are taxed at ordinary income tax rates and may be subject to a 10% penalty if withdrawn before 59.5. Any partial withdrawals are part tax-free return of contributions and part ordinary income on earnings and other contributions (government seed and employer contributions). That’s a little complicated so let’s look at an example.

Cameron was born on August 6, 2025. The government seeded his account with $1,000, his mother’s employer contributed $2,500, and his grandparents contributed $5,000 in 2026. Fast forward to 2044, the account is worth $25,000, Cameron is now 19, and going to college.  Because the account grows tax deferred, Cameron doesn’t pay any tax as the account grows between 2026 and 2044. If he takes the entire amount out to pay for college in 2044 how much is taxable?

• • $5,000 grandparent contribution is withdrawn tax free
  • $2,500 employer contribution is taxed as ordinary income
  • $1,000 government contribution is taxed as ordinary income
  • $16,500 in earnings is taxed as ordinary income
  • No penalties are assessed because he is using the money to pay for college. If Cameron used the money to purchase a car, he would pay tax on $20,000 in earnings and other contributions as well as a $2,000 penalty (10% of taxable distribution).

Now imagine Cameron waits until retirement. In 2085, he is 60 and the account is worth $250,000. He decides he is going to withdraw $20,000 each year to supplement his retirement income. Because this is a partial withdrawal, part is taxable and part is not. In 2085 the $20,000 would be taxed as follows:

• • $5,000 of $250,000, or 2% of the account, is a tax-free return of the grandparents’ contribution.
  • $245,000 of $250,000, or 98% of the account, is earnings and taxable contributions from the government and employer.
  • If Cameron withdraws $20,000 in 2085, $19,600 (98%) would be taxed as ordinary income and $400 (2%) would be tax free.

Trump Accounts should be viewed as one component of a holistic financial plan. They provide an early start on savings and investment, but optimal financial outcomes are achieved when these accounts are integrated with other planning tools, including 529 plans, custodial accounts, Roth IRAs, and estate planning vehicles. As an example, withdrawals from 529 plans for education are entirely tax free.  In the above example if Cameron used $25,000 of 529 plan funds to pay for college, none of the $25,000 would be taxable. Trump accounts provide more flexibility but fewer tax benefits than the 529 plan. The same analysis should be done for other investment account types such as custodial accounts and Roth IRAs.  Consulting with a financial planner is important to determine the best vehicle to achieve your goals.