Trump Accounts for Kids: Eligibility, Rules, and Benefits

Every parent asks the same question eventually: How can I set my child up for success? We lose sleep over their education, their health, and their future happiness. But when it comes to their financial foundation, the path isn't always clear. You might have a savings account earning pennies in interest, or perhaps a 529 plan strictly for college. But the landscape of generational wealth building just shifted in a major way.

The "One Big Beautiful Bill Act" (OBBBA) has introduced a new vehicle for securing your child's financial future: The Trump Account (TA). This isn't just another savings account; it is a tax-advantaged tool designed to harness the power of compound interest from the very beginning of a child's life.

At SD Mayer & Associates, we believe in looking at the full picture. We know that tax legislation can be dense and overwhelming, but buried within the complex language of the OBBBA is a significant opportunity for families and business owners alike. Whether you are looking to secure a nest egg for your newborn or offering a competitive benefit to your employees, understanding TAs is your next strategic move. Let's break down exactly how these accounts work, who is eligible, and how you can maximize this new asset class.

What exactly is a Trump Account?

Think of a Trump Account as a jump-start on retirement savings that begins before a child can even walk. It is a federally created savings vehicle designed to encourage long-term investment for minors.

Under a new pilot program, the structure is designed to be inclusive but particularly advantageous for new parents. If your child is a U.S. citizen born between 2025 and 2028, the federal government isn't just offering you a place to save money—they are funding it. The government will deposit an initial $1,000 into the account. We rarely see "free money" in the tax code, so when it appears, it is worth paying attention.

However, the benefits aren't limited to newborns. Older children are also eligible for TAs. As long as the child has a Social Security number and is under the age of 18 at the end of the tax year, you can open an account for them. The primary difference is that older children (those born before 2025) will not receive the $1,000 federal kick-starter contribution.

How to get started

Setting up a Trump Account requires a proactive step, but the process is being streamlined. You have two primary options for establishing the account:

1. Tax Return Election: You can make an election to set up the account by filing Form 4547, titled "Trump Account Election(s)," alongside your 2025 federal income tax return.
2. Online Portal: We know that waiting for tax season isn't always ideal. You don't have to file the form with your return; you can use a new online portal anticipated to launch this coming summer.

This flexibility allows you to integrate the setup into your annual tax planning meeting with us, or handle it independently as soon as the portal goes live.

The contribution rules: What you need to know

Once the account is established, the real power of the TA comes from ongoing contributions. Starting after July 3, 2026, the window opens for private contributions.

You, a grandparent, or essentially any other individual can contribute to the child's account. There is a combined annual limit of $5,000. It is important to note that this limit is expected to be adjusted for inflation starting in 2028, meaning the ceiling for savings will likely rise over time as the cost of living increases.

The government bonus doesn't count toward the cap

Here is a crucial detail for parents of newborns: The $1,000 government contribution does not count against your annual limit.

For example, if your child is born this year, the government puts in $1,000. In 2026, you (and your family) can still contribute the full $5,000 limit. This allows for a potential starting balance of $6,000 in the first operational year of the account, giving compound interest a robust baseline to work with.

A new strategic tool for employers

For our business clients, the TA offers an interesting new way to attract and retain talent. The OBBBA includes provisions for employers to participate in this savings growth.

After the July 3, 2026 start date, employers can set up a TA contribution program. You can contribute up to $2,500 annually to a TA for an eligible employee who is under age 18, or for an employee’s eligible dependent (child) who is under 18.

There are two massive benefits here:

1. Tax Deduction: The employer can deduct these contributions.
2. Tax-Free Income: These contributions are excluded from the employee's taxable income.

However, keep in mind that these employer contributions do count toward the total $5,000 annual limit for that child. Also, the cap is $2,500 per employee, regardless of how many children they have. This is a low-cost, high-impact benefit that shows your employees you care about their family's long-term well-being.

Investment restrictions and tax treatment

The philosophy behind the TA is safety and long-term growth. Because these accounts are meant for minors, the IRS has placed specific guardrails on how the money can be invested until the child turns 18.

You cannot use a TA to day-trade volatile stocks or buy speculative assets. The account must invest in "eligible investments," which are defined as mutual funds or exchange-traded funds (ETFs) that meet three main criteria:

• They track a qualified index.
• They do not use leverage.
• They do not charge fees exceeding 0.1% of the invested balance.

This low-fee requirement is excellent news for the account holder. High fees destroy long-term returns, so this rule ensures that the bulk of the investment growth stays in your child's pocket, not a fund manager's.

Tax-deferred growth

Contributions to a TA are not tax-deductible for you (the individual contributor). You put in after-tax dollars. However, the earnings grow tax-deferred. As long as the money stays in the account, you pay zero taxes on the dividends or capital gains it generates.

The transition: What happens at age 18?

The Trump Account is designed to be a bridge to adulthood. In the year the beneficiary turns 18, the TA structure dissolves and the account automatically transitions into a traditional IRA.

At this stage, the rules shift to the familiar regulations governing traditional IRAs:

• Contributions: The child must have earned income to contribute further. However, these new contributions will be tax-deductible (if eligible), and they can contribute up to the higher standard IRA limits.
• Distributions: Distributions are permitted, but caution is required. Because it is now a traditional IRA, withdrawals are generally taxable, and early withdrawal penalties could apply if the funds are taken out before retirement age.

This transition effectively turns the TA into a lifelong retirement vehicle. The goal isn't to spend the money at 18, but to let the groundwork you laid continue to grow.

The power of compound interest

Why go through the trouble? The numbers speak for themselves. Let's look at a scenario provided by the pilot program data.

Imagine you capitalize on the full eligibility. You get the $1,000 government grant in Year 1. Then, you contribute the max $5,000 every year for 17 years. If the account earns a conservative 5% annual return, it would be worth approximately $138,000 by the time the child turns 18.

Now, assume the child understands the value of this asset. They leave the money untouched in the resulting traditional IRA until they reach age 65. Even with no further contributions, assuming that same 5% return, that account would grow to almost $1.44 million.

By taking action in the first two decades of life, you have potentially secured their retirement before they even start their first full-time job.

Weighing options: TAs vs. 529 Plans

While the math is compelling, we always advise looking at your specific goals. TAs are powerful, but they aren't the only tool in the shed.

If your primary concern is paying for college, a Section 529 savings plan might still be the superior choice. The key difference lies in the distribution. With a 529 plan, distributions used for qualified education expenses are completely tax-free. With a TA (which becomes a traditional IRA), distributions are generally taxable.

However, recent law changes allow some leftover 529 funds to be converted to Roth IRAs. The choice doesn't necessarily have to be "either/or." For families with the means, a strategy utilizing both—a 529 for mid-term education needs and a TA for long-term retirement security—could be the ultimate safety net.

Taking the next step

The Trump Account represents a shift in how we think about funding the next generation. It moves the timeline for retirement planning from "first job" to "birth."

If your child is eligible for the $1,000 grant, setting up a TA is an easy decision—you shouldn't leave free money on the table. For older children, the decision requires a bit more strategy regarding cash flow and long-term goals.

At SD Mayer & Associates, we thrive on helping you navigate these opportunities. We can help you run the numbers, compare the tax implications against other vehicles like 529s or custodial accounts, and determine the best mix for your family's legacy.