The new savings accounts promise investment growth for kids but families must navigate new rules and possible tax bills on withdrawals.
A new tax-advantaged savings program created under President Donald Trump’s One Big Beautiful Bill Act is set to give American newborns a financial head start, while potentially adding some complexity to family finances and tax planning.
Under the bill, babies born in the United States between Jan. 1, 2025, and Dec. 31, 2028, will receive $1,000 from the federal government deposited into newly created “Trump Accounts,” investment vehicles modeled loosely on individual retirement accounts (IRA).
At a White House event in mid-June, Trump described it as a “pro-family initiative that will help millions of Americans harness the strength of our economy to lift up the next generation, and they’ll really be getting a big jump on life.”
Overview of Trump Accounts
Trump Accounts are designed to help families save and invest money for a child’s future from the earliest years of life. Once created, these accounts can be funded with up to $5,000 in after-tax contributions each year from parents, grandparents, other relatives, or family friends. Starting in 2027, this annual limit will rise with inflation to keep pace with the cost of living.
Employers also have the option to contribute to these accounts, at a maximum of $2,500 per year per child. These employer contributions are not counted as taxable income for the parent, and companies can deduct the payments as a business expense, provided they follow certain federal rules.
All money in Trump Accounts must be invested in low-cost mutual funds or exchange-traded funds that track a broad U.S. stock market index, such as the S&P 500. The law caps fund expenses at 0.1 percent per year, aiming to keep costs low so more money can grow over time.
The accounts are intended to remain untouched until the child reaches adulthood. After turning 18, account holders may access some of the funds under specific conditions, offering flexibility for major life goals.
Tax Treatment and Withdrawal Rules
Money inside the Trump Accounts grows tax-deferred, meaning parents don’t pay yearly taxes on interest, dividends, or capital gains. Instead, taxes are due when money is withdrawn.
By Tom Ozimek
