Trump Accounts

The One Big Beautiful Bill Act (OBBBA) added a new benefit for children called Trump Accounts (TA). And it can be bigger than you think! TAs are treated similar to a non-Roth IRA funded with post-tax dollars. These are effective beginning in 2026 and do not expire.

Eligibility – The child must be a U.S. citizen under age 18 and have a social security number.

Contributions up to $5,000 per child under age 18 per year can be made annually. The government will contribute an additional $1,000 as a 1-time contribution in the first year. The limitation is per child. For instance, a parent and both sets of grandparents cannot each contribute $5,000; the limitation is not on the donor, but on the child- $5,000 annually per child account.

Distributions -Amounts cannot be distributed from the account until the child has turned 18 (with a few exceptions). However, the main benefit is that a child would not have to take distributions from the account until the required minimum distribution age (currently 75).

Taxes- Contributions to the TAs are non-deductible by the donor and are also not considered income to the child. They are considered gifts, subject to the annual exclusion (currently $19,000). If you are currently contributing $19,000 to a 529 account, you’ll need to reduce the 529 contribution if you want to contribute to a TA, so as not to affect the gift tax rules.

After 18- The regular IRA rules apply as to income taxes and the 10% penalty also applies for distributions before age 59 ½.

Investments – The TAs can only be invested in low-cost non-leveraged mutual funds or ETFs based on an index such as the S&P 500 or similar diversified index of U.S. companies. This restriction seems to dissolve once the child turns 18.

Big Deal – The major benefit is compounding. For example, for a child born in 2026, an investment of $5,000 per year can be made for 18 years ($90,000) plus the $1,000 from the government. Let’s say the money is invested in the S&P 500 and if the S&P 500 retains its historical average return, the account would be worth over $200,000 when the child is 18. If the child doesn’t withdraw anything until age 70, the value of the account would be over $18 million.

Contributions after age 18 – Since the post 18 rules treat the account like an IRA, you may be able to continue contributions if the child has compensation. It would be treated the same as any other IRA contribution.

Trump Account Contribution Plan (TACP) – Also beginning in 2026, employers can establish a TACP for their employees and dependents. Employers can contribute up to $2,500 (annually we think) per employee/dependent subject to non-discrimination rules. The contributions are deductible by the employer, but not taxable to the employee/dependent. It seems for now until further guidance is issued that the contributions may be subject to FICA. Payments to accounts must be made by year end.

TA Contributions by Non-Profits- Certain non-profits can also make TA contributions.

Uncertain items – Until more guidance is issued, there are a few items that are uncertain:

•                Because the accounts are defined as like IRAs, there is some belief that you could convert the TA into a Rollover or Roth IRA after age 18.
•                Contributions to TAs could potentially be made through payroll deductions (salary deferrals).