Trump accounts were introduced in the One Big Beautiful Bill Act, signed into law on July 4th, 2025, as a new investment account designed to save and invest with the goal of giving every child a head start. The accounts could not be funded before July 4th, 2026, so it is important to understand how this account works so you are prepared to manage it properly. By gaining familiarity with the rules, families can take full advantage of this opportunity. | | |
How the Trump Accounts Work
For every child born between January 1, 2025, and December 31, 2028, who is a U.S. citizen, the U.S. government will deposit $1,000 to start their account.
Other children under 18 can have their own accounts opened; however, they will not be eligible for the $1,000 deposit.
For each year, the account can have up to $5,000 contributed; this contribution limit will be adjusted for inflation in 2027. Contributions can be made by anyone: yourself, relatives, or even neighbors.
Employers are also able to contribute money, limited to $2,500 per employee; employers can receive a deduction for this contribution, and it is not considered income to the employee. The employer contribution amount applies to the $5,000 contribution limit. Both the total contribution amount and the employer contribution amounts are indexed for inflation starting in 2027.
Contributions must be made during the calendar year. The last year these contributions can be made is the year before the child turns 18. For example, if the child turns 18 on March 1st, 2028, the last year of contributions that can be made to the account will be 2027.
Investment options are restricted, limited to indexes and funds that track American stock markets. Currently, five investment options are offered, with more expected to be offered in the future.
| | When Can Funds be Withdrawn? | | There are several rules around withdrawal of funds, with none allowed before the child turns 18 and a 10% tax penalty applied to unqualified withdrawals. Qualified expenses, such as college, buying a house, having a child or adoption expenses, or natural disasters, are exempt from the 10% penalty. | All of these qualified expenses have caps on the amount that can be withdrawn without invoking the penalty. Once the child reaches age 59 ½, they can withdraw money from the account for any reason without being assessed penalties. Trump account withdrawals will be taxed the same as IRA withdrawals, at ordinary income tax rates. | | |
How Withdrawals Are Taxed
Due to the nature of Trump Accounts being similar to an IRA, basis will be an important consideration. When funds are eventually withdrawn from a Trump Account, the IRS does not allow you to simply subtract your after-tax contributions from the account balance to determine the taxable amount. Instead, each distribution must be allocated proportionately between taxable and nontaxable amounts based on the ratio of after-tax contributions to the total account value. For tax purposes, only contributions made by individuals with after-tax dollars create basis. The initial $1,000 government contribution, employer contributions, contributions from government entities or nonprofit organizations, and all investment earnings do not create basis. These amounts grow tax-deferred and are generally taxable as ordinary income when withdrawn.
For example, assume your child's Trump Account has grown to $50,000 by adulthood. Of that amount, $10,000 consists of after-tax contributions made by family members, while the remaining $40,000 represents the government contribution, employer contributions, and investment earnings. Because 20% of the account represents basis ($10,000 ÷ $50,000), 20% of every distribution will be tax-free, and 80% will be taxable. If your child withdraws $5,000, $1,000 (20%) will be a tax-free return of basis, while the remaining $4,000 (80%) will be taxable as ordinary income.
| | Employer Contribution Opportunities | | Employers are allowed to make contributions of up to $2,500 per employee each year and receive a tax deduction, and the contributions will not be included in the employee’s income. If an employer contributes more than $2,500, the excess will be considered income to the employee. Employers who wish to participate in the program must set up a Trump Account Contribution Program plan. Requirements are similar to the Section 129 dependent care assistance program regarding discrimination, eligibility, notification, statements, and benefits that apply to a Trump account Contribution Program. | | Overall, Trump accounts represent a long-term investment tool aimed at giving children a meaningful financial foundation. By providing an initial government-funded deposit for eligible newborns, allowing ongoing annual contributions from a variety of sources, and offering tax-deferred growth with specific rules on investing and withdrawals, the program encourages families to plan for major life milestones. Although the accounts come with limitations, such as investment restrictions, age-based withdrawal rules, and caps on qualified expenses, they offer a structured way to build savings over time.
If you have questions about Trump Accounts or would like to discuss how they fit into your family's financial plan, contact Griffing & Company. Our team is here to help you understand the rules and make informed decisions for the future. | | | | |
