Policy Update Series: One Big Beautiful Bill Act (OBBBA)

The Public Ledger has developed an ongoing series on the One Big Beautiful Bill Act (OBBBA), this update focuses on a new federal savings initiative that may be relevant to many individual taxpayers: Trump Accounts, as designated in the statute. These accounts are designed to support long-term financial growth for children born between 2025 and 2028, and may offer new planning opportunities for families filing Form 1040.

What is a Trump Account?

A Trump Account is a government-backed savings and investment account designed to help children start building wealth from birth.

For children born between January 1, 2025 and December 31, 2028, the federal government will automatically contribute a $1,000 “seed” deposit into an account created in their name. Parents, relatives, and even employers can then add up to $5,000 per year in after-tax contributions.

Like a retirement account, the funds in a Trump Account grow tax-deferred; meaning you won’t owe tax on the earnings until money is withdrawn later in life. However, there are no pre-tax contributions.

How the Account Works:

No withdrawals are allowed until the child turns 18, ensuring the account has time to grow.
Beginning at 18, limited withdrawals are permitted for certain qualified expense including higher education, job training, or buying a first home.
After reaching a later age (expected to be around age 30), funds can be used for any purpose, similar to how an IRA functions.
The initial $1,000 government contribution does not count toward the current $5,000 annual contribution limit per child.

Funds will be invested in approved, diversified portfolios (typically index funds or ETFs) based on rules the IRS and Treasury Secretary are finalizing now.

Eligibility & Setup:

To qualify, the child and both parents must have a valid Social Security number and a parent or guardian must elect to open the account when made available in 2026. There are no income limits or tax filing requirements to receive the initial deposit.

Tax-Free Growth; Tax-Advantaged Contributions:

Trump Accounts are not tax-free on contribution, but they are tax-free on growth and qualified withdrawals — so they’re tax-advantaged, not “tax-free” overall. Additional contributions may be allowed from parents, grandparents, or others, though investment options are still pending the Treasury Secretary's final approval.

No Impact on Current-Year Tax Filing (Yet):

At this stage, Trump Accounts do not affect your current Form 1040 filing. However, future IRS guidance may clarify reporting requirements, contribution deductions (if any), or coordination with other savings vehicles like 529 plans.

Tax Tip: Tax-Free vs. Tax-Advantaged

It’s easy to mix up these terms, but they mean different things:

Tax-Free: You never pay taxes on the money, not when you contribute, not as it grows, and not when you withdraw it.
Tax-Advantaged: You get a break at one stage (either up front or later) but not both.

Trump Accounts fall into the tax-advantaged category: you contribute after-tax dollars, but your growth and qualified withdrawals are completely tax-free.

Planning Considerations for Families

If you're a parent or guardian filing Form 1040, here are a few things to keep in mind:

Track Birth Dates & Social Security Numbers:

If you have children born in 2025 or later, ensure you apply for their Social Security number promptly and watch for account enrollment instructions.

Watch for IRS Guidance:

The IRS and Treasury are currently developing the official rules and reporting procedures for Trump Accounts, expected sometime in 2026. Once finalized, families will be able to:

Verify eligibility for the $1,000 seed contribution
Open and contribute to Trump Accounts through approved financial institutions
Track tax reporting through familiar 1099-series forms

As your trusted tax professionals, we’ll continue to monitor new guidance from the IRS and share updates on how Trump Accounts can fit into your family’s broader tax and savings strategy.

Coordinate with Other Savings Plans:

If you already contribute to a 529 plan or custodial account, consider how Trump Accounts may complement your existing strategy.

No Immediate Tax Benefit for 2025 Filers:

The $1,000 deposit is not taxable income and does not need to be reported on your 1040. However, future contributions or withdrawals will likely have tax implications depending on final rules.

How Trump Accounts Differ from 529 Plans

At first glance, Trump Accounts might sound like another version of a 529 college savings plan, but they’re designed with broader flexibility in mind.

For more detailed comparisons, see our Trump Accounts versus 529 Plans chart.

In Summary

Trump Accounts represent a new federal savings opportunity for children born between 2025 and 2028. While they don’t affect your current tax filing, they may become a useful tool for long-term planning and providing a starting point for the financial wellbeing of your children, grandchildren, nieces, nephews etc. Individual taxpayers should monitor IRS updates and consider how these accounts fit into their broader financial strategy.

Stay Connected, Stay Informed

These tax law updates are just the beginning and guidance will continue to evolve at both the state and federal level. Follow John Kasperek Co., Inc. on LinkedIn to stay ahead of the curve with timely updates, insights, and resources tailored for Illinois governments, schools, and municipalities.