The One Big Beautiful Bill Act (OBBBA) created a new tax-advantaged savings and investment account for children. The account, commonly referred to as “Trump Accounts” is scheduled to roll out beginning in 2026, with the first contributions to the account being allowed after July 4, 2026.

Who Is Eligible?

Any minor who has not attained the age of eighteen before the end of the calendar year the account election is made is eligible for a Trump Account. In other words, the beneficiary must be 17 or younger for the entire year to accept contributions into their account. The beneficiary must also have a valid Social Security number that is issued before the election. Unlike traditional IRAs or other tax-advantaged accounts, Trump Accounts have a no earned-income requirement. An additional important item to note is that there can only be one Trump Account per beneficiary at any time, so for parents and grandparents who wish to make contributions, all contributions must be made to the same account.

Rules for Contributions

Contributions are made to the minor’s Trump Account through the account trustee or financial institution. There are no limitations regarding who can contribute to the account, meaning almost anyone can contribute to a minor’s account (e.g., parents, grandparents, friends, etc.). During the “growth period,” which generally covers the period from the time the account is opened through December 31^st of the calendar year in which the account beneficiary attains age seventeen, contributions are capped at $5,000 per year.  Contributions attributable to a government agency or charitable organization generally do not count against the $5,000 annual cap. Employers may also establish a contribution program offering up to $2,500 annually per employee, which counts toward the overall contribution limit.

Contributions made to Trump Accounts are made after-tax, meaning there is no tax deduction when made.

Investment and Distribution Restrictions

During the growth period, investments are limited to eligible funds that trace broad indices, avoid leverage, and have low fees. These include mutual funds or ETS that passively track a qualified index.

Generally, no distributions can be taken from the account before January 1^st of the calendar year in which the beneficiary attains age eighteen unless the distributions are for qualified rollover contributions, qualified ABLE rollover contributions, distributions of excess contributions, or distributions upon the death of the account beneficiary.

How are Distributions Taxed?

1. Distributions of after-tax contributions made to the account are able to be withdrawn tax free, as the contributions consisted of after-tax dollars.
2. Distributions attributable to tax-free appreciation or earnings of the account will be taxed at the beneficiary’s ordinary income tax rate. Distributions of the pilot contribution from the government, discussed later, will also be subject to tax.
3. Lastly, it is important to note that early withdrawal penalties like those in place for retirement accounts exist. As a result, absent an exception, distributions made by the beneficiary before they turn 59 ½ will be subject to a 10% penalty.

What is the Pilot Program?

As part of the legislation, a Contribution Pilot Program was created which allows an authorized individual to elect to have the Treasury Secretary make a one-time $1,000 payment to the Trump Account of an eligible child who is born in 2025, 2026, 2027, or 2028. This payment effectively serves to seed the account without there being any matching requirement. The payment is not required to be treated as taxable income and is not counted toward the $5,000 annual contribution limit. To elect into the program, an election must be made using Form 4547 filed with the tax return of person who expects the eligible child to be considered their qualifying child.

Reach Out to Learn More

Trump Accounts provide a mechanism to kick-start savings for minors and can be a great way to leverage tax-free appreciation of assets and take advantage of compound growth. Contributions made are considered a gift to the beneficiary, so family members intending to take advantage of these accounts that are also following annual gifting strategies should make sure to take this into consideration when determining the total annual gift to be made to each donee. Parents and guardians should work with their financial advisors and CPAs to determine if a Trump Account makes sense when deciding whether or not to contribute.

Feel free to contact your H2R CPA liaison and they will be happy to assist you with any questions.

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