President Trump’s Working Families Tax Cuts Act—also called the One Big Beautiful Bill Act (OBBBA)—introduces Trump Accounts, giving American families a new way to establish tax-advantaged savings accounts for children under 18. Children born between January 1, 2025, and December 31, 2028, also qualify for a pilot program with a $1,000 government contribution.
Overview of Trump Accounts
Trump Accounts are innovative savings vehicles akin to individual retirement accounts (IRAs) designed to help families build wealth from the birth of a child. For a child born in 2025 through 2028, they come with the option of receiving a one-time $1,000 government seed contribution. Families may contribute up to $5,000 annually, adjusted for inflation, through the year before a child turns 18. The program invests the funds in broad, low-cost stock market index funds, offering substantial growth potential over time.
Eligibility and Contributions
Any child under 18 with a valid Social Security number can have a Trump Account, managed by a parent or guardian until the child reaches adulthood. These accounts are inclusive, allowing contributions from a wide range of sources.
- Eligibility to Contribute:
- Children, parents or guardians, grandparents, family members, friends, and employers can all contribute to Trump Accounts. The standard annual contribution limit starts at $5,000 per child and will adjust for inflation over time.
- Contributions are not tax-deductible (but see next bullet).
- Employers can contribute up to $2,500 annually towards the $5,000 cap. The employer is allowed a deduction for the contribution, and it is not taxable to the employee.
- Because many qualified contributors can fund Trump Accounts, administrators must implement strong safeguards to ensure contributions do not exceed the annual $5,000 limit. A centralized record-keeping system should track all contributions to each child’s account, provide real-time updates, and allow contributors to verify current contribution levels. Administrators should also encourage or require contributors to register planned contributions in advance, enabling the system to automatically flag any contribution attempts that would exceed the limit.
- Additionally, implementing automated alerts for both contributors and account holders upon approaching the $5,000 threshold can prevent unsolicited over-contributions. Transparent communication channels and clear guidelines on contribution reporting obligations will also be crucial. By integrating these comprehensive systems and procedures, administrators can effectively uphold the integrity of the annual contribution cap and avoid missteps that could disrupt the intended benefits of Trump Accounts.
Qualified Class Contributions:
Qualifying charitable organizations and government entities (such as states, tribes, and localities) are also eligible to make contributions. However, these entities (charities and governmental bodies) must specify a "qualified class" of account beneficiaries to whom the contribution is to be distributed. This means the contributions are directed towards a defined group of beneficiaries, such as all children born in a specific year or within a certain geographic area, rather than to individual accounts without specification.
This framework allows charitable organizations and government entities to significantly contribute to the foundational development of these tax-advantaged savings accounts for the eligible children.
Example: Michael and Susan Dell, through the Michael & Susan Dell Foundation, are contributing $6.25 billion to seed Trump Accounts with $250 for children who are 10 or under who were born before Jan. 1, 2025. The pledged funds will cover 25 million children age 10 and under in ZIP codes with a median income of $150,000 or less.
The $1,000 Government Seed Contribution
The federal government will provide a one-time $1,000 contribution to eligible Trump Accounts. This seed money is intended to give newborns a financial jumpstart through long-term investing in the stock market. The government seed amount applies to a specific cohort of children:
- Birth Date Range - The child must be born on or after January 1, 2025, and before January 1, 2029.
- Citizenship - The child must be a U.S. citizen with a valid Social Security number.
- Account Opened - An election must be made by a parent or guardian to open a Trump Account on the child's behalf.
- One-Time Contribution - It is a one-time, initial deposit of $1,000; the government does not make recurring contributions.
- Does Not Count Toward Limits - The government's $1,000 contribution does not count toward the annual private contribution limit (currently $5,000).
- Taxed Upon Distribution - The $1,000 seed amount, along with investment earnings, grows tax-deferred but is considered pre-tax money and will be taxed as ordinary income when withdrawn after age 18.
Children born outside this four-year window (e.g., before 2025) are eligible to have a Trump Account opened for them and receive other benefits (like potential employer contributions and those from charitable organizations like the Dell Foundation), but they will not receive the $1,000 government seed money.
Investment Strategy
Trump Accounts must adhere to specific investment rules: they can only invest in broad U.S. equity index funds that do not use leverage and charge minimal fees. This restriction aims to simplify the investment process and ensure transparency while capitalizing on the growth potential of the U.S. stock market.
Tax Implications
For taxpayers, understanding the tax implications of Trump Accounts is critical. Like a Roth IRA, contributions are not tax-deductible, but like a traditional IRA, the earnings grow tax-deferred until withdrawn. Once the child reaches 18, the account follows standard IRA withdrawal rules, including potential taxes and penalties for early withdrawals.
- Distributions Before Age 18 - Beneficiaries cannot access funds from Trump Accounts until they turn 18. This rule helps preserve the funds and allows them to potentially grow until the beneficiary reaches adulthood.
If a child with a Trump Account dies, the funds in the account may transfer to the child’s estate or, alternatively, to a designated survivor or beneficiary named for this purpose. Clear directives must govern these accounts to ensure a smooth transfer of funds that aligns with the account holder’s intentions.
- Distributions After Age 18 - When the beneficiary is 18 or older, distributions have two components:
- Parents, relatives, and others can withdraw after-tax contributions tax-free because they already paid taxes on the money before contributing it.
- Pre-tax amounts—including investment earnings, the $1,000 government seed grant, and employer or charitable contributions—are taxed as ordinary income when withdrawn.
Penalties
- Additionally, a 10% early withdrawal penalty generally applies to taxable distributions taken before the beneficiary reaches age 59½, unless an exception applies.
- Tax-Exempt Scenarios (Exceptions to the 10% Penalty) - Although the pre-tax portion of distributions remains subject to ordinary income tax, the 10% penalty may be waived if the child uses the funds for "qualified expenses" after turning 18:
- Higher Education Expenses: Tuition, fees, books, and other related costs for post-secondary education.
- First-Time Home Purchase: Up to $10,000 may be used for a down payment on a first home.
- Birth or Adoption: Up to $5,000 can be used for qualified expenses related to the birth or adoption of a child.
- Disability Expenses: Expenses related to the disability of the beneficiary.
- Other exceptions: Including disaster recovery and terminal illness.
Account Management and Transfers
To open a Trump Account, guardians must use IRS Form 4547, Trump Account Election(s), or an online tool or application at trumpaccounts.gov. Form 4547 can be filed with a taxpayer’s 2025 tax return, while the online tool/application won’t be available until sometime in mid-2026. And accounts cannot begin to take contributions until July 4, 2026.
The Treasury’s designated agent initially holds the accounts, but families can transfer them to a preferred brokerage, providing flexibility after the initial setup.
This transferability is an advantage for account holders, allowing them to manage their investments actively and to select financial institutions that best align with their financial goals and service preferences.
IMPORTANT
Parents of children under 18 must file Form 4547 with their tax return to elect a Trump Account for their children. The form accommodates 2 children, and multiple forms can be filed. It requires the name and SSN of the parent/guardian with their contact information. It also requires the name, SSN, date of birth, and home address of the child.
Importantly, it includes a box that must be checked if you want the child (born after January 1, 2025, and before January 1, 2029), to receive a $1,000 government contribution to their Trump Account.
Please contact this office at www.Fiducial.com/consultations with questions and for filing assistance.
- Overview of Trump Accounts
- Eligibility and Contributions
- Eligibility to Contribute
- Qualified Class Contributions
- The $1,000 Government Seed Contribution
- Birth Date Range
- Citizenship
- Account Opened
- One-Time Contribution
- Does Not Count Toward Limits
- Taxed Upon Distribution
- Investment Strategy
- Tax Implications
- Distributions Before Age 18
- Distributions Age 18 or Older
- Account Management and Transfers
- Form 4547