Created as part of the 2025 federal tax reform, Trump Accounts add to the tools available to help children save for the future—in this case geared toward retirement. Unlike traditional retirement accounts, the owner/beneficiary does not need to earn income to make contributions. The accounts can be set up essentially from birth, extending the compounding potential that can be so valuable when it comes to long-term investment.

The new accounts have their own special rules, characteristics and uses. We provide an overview below.

An ‘IRA’ for Children

Trump Accounts are tax-advantaged investment vehicles available to establish for children up to the end of the year they turn 17. The vehicles are similar to an Individual Retirement Account, although an adult (typically a parent or guardian) acts on behalf of the child/owner, setting up the account, choosing investments and making or securing contributions, until the year the child reaches age 18.

In a much-publicized provision, the federal government will provide a one-time $1,000 seed contribution to Trump Accounts for children who are U.S. citizens born between January 1, 2025, and December 31, 2028. This contribution is meant to jump-start investments from an early age.

There are two additional ways to make contributions: First, individuals (whether directly or as part of an employee benefit plan) and their employers (as part of an employee benefit plan) can provide up to a total of $5,000 per account per year (indexed for inflation after 2027). Note that employers can only contribute $2,500 per employee—whether for the employee, if under 18, or the employee’s children. If the employee has multiple children, the funds may be divided among them. Second, states, localities and charitable organizations can make contributions that are not subject to the $5,000 annual cap.

Investment Options

The choices for investment within a Trump Account are fairly limited. Until the child reaches 18, the account may only be invested in mutual funds or ETFs that track the S&P 500 or another equity index where at least 90% of the assets are in U.S. companies. No leverage is allowed, and the funds cannot charge an expense ratio of more than 10 basis points. Fund providers can offer multiple options, but must also designate a default investment. When the account is eventually converted to an IRA (see below), the standard investment limitations associated with IRAs will apply.

Tax Treatment

Income tax treatment of Trump Accounts depends on whether the contributions are considered pre-tax and have no basis, or post-tax and have basis. The federal $1,000 seed money, employer contributions and qualified contributions from states, localities and charities have no basis. Those contributions are fully taxable when eventually withdrawn. In contrast, direct individual contributions are made with post-tax dollars and have basis, and thus withdrawals of those contributed amounts are tax-free.

In all of these cases, the accounts grow tax-free, but the investment earnings are taxable upon withdrawal. Accordingly, depending on how the account is funded, withdrawals may be part return of capital (which may or may not be subject to tax) and part earnings, which will be. Unfortunately, there can only be one Trump Account per child, so tracking the basis of the contributions will be important to enable proper tax reporting once withdrawals are permitted.

As for gift taxes, under the current rules, an individual’s contribution to a Trump Account is considered a taxable gift, but is not eligible for annual exclusion treatment. Accordingly, such a contribution—no matter how de minimis—requires the filing of a federal gift tax return to report the transfer. That said, gift taxes may not be owed if the individual has not exceeded their federal gift and estate tax exclusion (currently $15,000,000). It is possible that this tax treatment could change with new legislation or regulatory guidance.

Setting Up a Trump Account

Trump Accounts will become available starting July 5, 2026, to U.S. citizens up to age 17 (as of the end of the election year) with a Social Security number. To open an account, an adult (usually a parent or guardian) must make an election with the IRS on behalf of the child, either by filling out the newly created Form 4547 or by using a tool on a government website, www.trumpaccounts.gov. Claiming the $1,000 federal contribution requires a separate election that can be made at the same time. The adult (now the responsible party) can subsequently set up the account based on instructions from the IRS, starting on July 5, 2026. The federal government administers the accounts at first, but they can subsequently be rolled over to Trump Accounts at financial institutions.

Rollovers, Changes Upon Adulthood

Given their nature as long-term savings vehicles, there are very few permissible withdrawals from Trump Accounts in what’s called their “growth stage” (until the start of the year the owner reaches age 18). If the assets are rolled over to another financial institution during this time, the respective tax bases of the contributions are maintained.

On January 1 of the year the owner reaches age 18, the account converts to a traditional IRA. At this point, standard IRA rules will apply, including limits on withdrawals before age 59½ (except for certain well-known exceptions), as well as (eventually) rules for required minimum distributions. It is possible to do a Roth conversion at this time, capitalizing on the likely low tax rate of the owner at that age, after which the account has the potential to compound on a fully tax-free basis.

Gauging the Planning Role of Trump Accounts

Trump Accounts are probably best described as early, long-term retirement vehicles, and thus must be judged in relation to the various priorities that a given family may have for their child. For example, 529 accounts may offer more ample opportunities for education savings, while custodial accounts or trusts, although taxable, may provide additional resources for potential support. (See “Other Child Savings Options” below.)

Conclusion: Waiting for Further Developments

Trump Accounts are an entirely new type of savings vehicle, and the IRS has yet to iron out all the rules that apply—further guidance is pending. Moreover, it may take a while before financial institutions are ready to provide the accounts, and before employers, charities and state/local governments start to take advantage of them. Importantly, the Trump administration is planning an outreach to encourage greater involvement and access. That said, we are optimistic that Trump Accounts can prove useful to many families. We will be watching closely as events progress.