In a recent blog post, we summarized some of the key tax provisions included in the One Big Beautiful Bill Act (OBBBA). One of the provisions introduces a new savings vehicle for children. This post will provide a more in-depth look at these “Trump Accounts.”
Overview
A Trump Account is a new type of tax-advantaged investment account for children under age 18. The account is structured similarly to a traditional individual retirement account (IRA), but with special rules tailored for minors and their families. The goal is to encourage early and sustained savings and investment for children, with potential for significant long-term growth.
To qualify as a Trump Account, the account must be an IRA that is not designated as a Roth IRA. In addition, the account must be:
- Established by the Treasury Secretary or in the United States for the exclusive benefit of an eligible individual under age 18 or their beneficiaries, and funded by a qualified rollover;
- Designated as a Trump account at the time of creation, following Treasury rules;
- Governed by a written agreement stating: (1) no contributions before July 4, 2026, or in excess of annual limits before the beneficiary turns 18; (2) no distributions before the beneficiary turns 18; and (3) funds may only be invested in eligible investments until the beneficiary reaches age 18.
Trump Accounts can be created for any U.S. citizen under 18 years of age with a valid Social Security Number. Upon an election, a one-time tax free payment of $1,000 will be made through a “pilot” program by the Treasury Secretary to a Trump Account of an eligible child (children born between January 1, 2025 and December 31, 2028.) Other children under age 18 are still eligible for Trump Accounts, but they will not receive this initial $1,000 of funding. Families can voluntarily open a Trump Account for an eligible child, but the mechanics for doing so are not yet entirely clear.
Funds must be invested in diversified mutual funds or exchange-traded funds (ETFs) that track broad U.S. stock indexes, such as the S&P 500. The account cannot invest in leveraged funds or sector-specific indexes, and annual fees are capped at 0.1% of the account balance.
Contributions
Contributions to Trump Accounts can begin no earlier than July 4, 2026, and the annual limit is $5,000 per child. This amount will be adjusted for inflation after 2027. Contributions are after-tax (not deductible) and can be made by anyone including a parent, grandparent, relatives, friend, etc. for a child until the year the child turns 18.
Employers may establish a Trump Account Contribution Program through which employers may contribute up to $2,500 to the Trump Account of an employee or the dependent of an employee. These contributions, which are deductible by the employer and are not taxable to the employee, count towards the $5,000 annual contribution limit.
Certain exempt contributions do not count towards the $5,000 annual contribution limit. These exempt contributions include qualified rollover contributions, any qualified general contribution (certain charitable or government funded allocations), and the $1,000 government pilot program contribution. In other words, contributions to a Trump Account from certain governments and charities can be made in addition to the normal $5,000 annual contribution limit.
While a Trump Account is treated like an IRA, contributions to a Trump Account are in addition to and do not reduce the allowable contribution limits for other IRAs including Roth and traditional IRAs.
Distributions
No withdrawals are permitted before the account beneficiary turns 18, except for a distribution that is a qualified rollover contribution or qualified ABLE rollover contribution. Excess contributions (contributions in excess of the annual limit) made before the calendar year in which the beneficiary attains age 18 can also be distributed tax-free before the beneficiary reaches age 18. Any earnings from the excess contributions, however, are fully taxable.
Once the account beneficiary turns 18, distributions from the Trump Account are permitted for any purpose. There are no restrictions on the use of the funds, and the beneficiary has full access to the account balance.
Distributions in excess of the account beneficiary’s basis (the sum of after-tax contributions made by the beneficiary, parent, relative, friends, etc.) are taxable as ordinary income to the beneficiary. This means that distributions related to earnings, qualified general contributions, government pilot program contributions, and employer contributions are taxable. Distributions of after-tax contributions made by parents and relatives are tax-free.
Although distributions are permitted after age 18, distributions made before the beneficiary reaches age 59½ are generally subject to a 10% early withdrawal penalty, in addition to regular income tax. This penalty is similar to the rules that apply to IRAs. There are several exceptions to the early withdrawal penalty, including distributions used for qualified higher education expenses and first-time home purchases. All distributions after age 59½ are taxed as ordinary income and are penalty-free.
If you have questions about Trump Accounts or how other OBBBA tax provisions may impact your tax planning, please contact your GYF Tax Executive at 412-338-9300.
Ryan Fronius contributed to this post. A Senior Manager in the Tax Services Group, Ryan has 10 years of experience in public accounting. He serves a variety of clients, including corporations, partnerships, S corporations, limited liability companies and individual taxpayers.
