The “Trump Account” was created as part of the OBBBA signed on July 4, 2025.
I’ve been getting a lot of messages to break it down more in-depth in a clear and educational manner.
I’ll walk through the rules, highlight pros & cons, and give my take on when (if ever) this account makes sense. Let’s dive in:
Timing
First and foremost, no contributions are allowed in this savings account for children before 12 months after law enactment, meaning you can’t use it or invest in one until July 5, 2026.
This is because the IRS needs to implement all the rules and custodians will need to create the infrastructure for it. The details below are also just my interpretation of the full bill (read full text here), and there are sections that still need to get clarified by the IRS.
General Treatment
A Trump Account is treated like a traditional IRA under Section 408(a) (not Roth), with some modifications. It is created for the exclusive benefit of an eligible individual who:
- Has not attained age 18 before end of the year.
- Has a Social Security number.
- Has an election made by the IRS, or by a parent/guardian.
The election will likely be a part of the tax return (i.e. Form 1040) or some other election as of the account opening. When such an account is created, it must be designated as a “Trump Account”.
My guess is that you will be able to open this account from Fidelity/Vanguard/Schwab, etc
Contributions
There are 2 types of contributions – exempt and non-exempt (regular)
-> Non-exempt contributions
Up to $5,000/year can be contributed by parents, grandparents, or even relatives, until the child turns 18, indexed for inflation starting in 2027. Importantly, there will be NO tax deduction for contributing to this account, so it’s an after-tax account.
-> Exempt contributions:
- Employer contributions – up to $2,500/year, excluded from income of the employee
- Pilot program – Parents/guardians elect for an “eligible child” (U.S. citizen born Jan. 1, 2025, through Dec. 31, 2028) to receive $1,000 as a tax payment, refunded directly to the child’s Trump account. The election requires the child’s Social Security number. This means that you can receive $1,000 as a one time deposit directly into the Trump account as part of the pilot program.
- Qualified general contributions – governments or nonprofits can also contribute for certain minors based on some qualifications (e.g. county deposits $1,000 for all minors living in that county)
Exempt contributions aren’t part of the “basis” which becomes important for withdrawals.
Investments
Funds must be invested in eligible index mutual funds or ETFs that:
- Track a broad U.S. equity index
- Don’t use leverage
- Have an expense ratio <0.10%
I like this requirement. Keeping it simple and watching the fees. Exactly how I like to invest in my portfolio.
Distributions
Generally, no withdrawals are allowed before age 18 (except for rollovers or excess contributions). This means that you can’t withdraw it even if you need this money.
After 18, the account functions like a traditional IRA. This means that when you withdraw the money, the growth is taxed as the ordinary income when withdrawn.
A withdrawal will likely be applied pro-rata between the basis (all those non-exempt contributions) and earnings. Importantly, Trump Accounts are tracked separately from other IRAs for pro-rata purposes.
Also withdrawals before 59½ will a 10% penalty unless an exception applies (higher qualified education expenses, $10k for a first home, Section 72(t), etc) similarly to IRA rules.
Example
Say you, as a parent, contributed $5,000 to this account. You did not receive any tax deduction for this contributions. Your child also received $1,000 from the pilot program, since your child was born between 2025-2028. At 18, the account grew to $22,000.
- Basis = $5,000
- Earnings = $17,000
Withdrawals at 18 will be likely be pro rata – so if you take $10,000 out of this account to pay for college, ~$2,272 would be basis (non-taxable) and ~$7,727 taxable earnings.
You would pay taxes on $7,727 based on the marginal tax rate. A 10% penalty will not apply, since an exception applies (see a full list of exceptions here)
Conversion to Roth IRA
This is the most interesting part of tax planning opportunity for this account.
If allowed, Roth conversions at 18 could give a child decades of tax free growth without needing earned income. Roth IRAs require earned income to contribute, but imagine if you convert $25,000 to a Roth IRA, pay the tax, and your child could have 40 years of tax free growth.
Conversions will be taxed pro-rata, and above certain thresholds the kiddie tax will apply (if your child is a dependent on your taxes)
For example, converting the full $22,000 in the example above would trigger tax on the $17,000.
Benefits and Prioritization
Personally, I believe the main usefulness of this account is the Roth IRA play, and wealthier taxpayers will likely take advantage if allowed. At minimum, I’d take the $1,000 pilot credit if your child qualifies.
For ongoing contributions, a 529 plan will likely come out ahead for most families. This is because the withdrawals are tax free for education, you can often claim a state tax deduction, and OBBBA expanded qualified expenses on 529 plans to include expenses like SAT/AP exams costs and postsecondary credentials. You can also convert up to $35,000 to a Roth IRA from a 529 plan.
Liquidity is also important. A Trump Account is much more restrictive than a UTMA for example. Imagine your child wants to buy a car at 18. Withdrawals from the Trump account to buy a car will come with a 10% penalty. Withdrawals from UTMA don’t have a penalty. You can also do tax gain harvesting in UTMA to minimize taxes.
Summary
- Trump Accounts are after-tax (no deduction for contributions).
- Parents/relatives can contribute up to $5,000/year until age 18.
- No withdrawals before 18, and after that it works like a traditional IRA.
- Growth is tax-deferred. Withdrawals are ordinary income.
- A $1,000 credit is available for eligible children born 2025-2028.
I personally believe for most families a combination of 529 plan + UTMA/brokerage in parents name will be sufficient and should likely be prioritized. A small Trump Account allocation may make sense as a Roth conversion strategy, but the IRS still has to clarify many details.
Did you like this breakdown? Would love to hear your feedback or content suggestions.
See you next Saturday. Enjoy your weekend.