Trump accounts are a new type of tax‑advantaged savings vehicle for children under age 18, created under the One Big Beautiful Bill Act (OBBBA). These accounts are designed to help children begin long‑term retirement investing without the earned‑income requirement associated with traditional IRAs.
Eligibility
Any child under age 18 with a Social Security number is eligible to have a Trump account opened on their behalf.
Government Contribution
U.S. citizens born between January 1, 2025, and December 31, 2028 receive a one‑time $1,000 “pilot” contribution from the federal government. This amount is claimable by an adult—typically via Form 4547 filed with their tax return.
Annual Contributions
Parents, guardians, and other individuals may contribute up to $5,000 per year per child, with the limit indexed for inflation after 2027.
Investment Options
Funds must be invested in low‑fee, diversified mutual funds or ETFs that track broad U.S. equity indexes, such as the S&P 500.
Withdrawal Rules
Withdrawals are prohibited before the beneficiary turns 18, with limited exceptions. After age 18, the account operates similarly to a traditional IRA:
- Distributions are generally included in gross income and taxed as ordinary income, except for the beneficiary’s basis (after‑tax contributions from the beneficiary, parents, or others).
- Earnings and employer/government contributions are fully taxable upon withdrawal.
- Early withdrawals before age 59½ typically incur a 10% penalty, with exceptions for higher education, disability, first‑time home purchase, birth/adoption, domestic abuse, or natural disaster.
No Required Minimum Distributions
There is currently no age at which withdrawals are required.
Employer Contributions
Employers may contribute up to $2,500 per employee per year (indexed for inflation after 2027) to Trump accounts for employees’ dependents. These contributions are excluded from the employee’s gross income if made under a qualifying written plan that satisfies nondiscrimination and related requirements.
Key Points
- The $2,500 limit applies per employee, not per dependent, and counts toward the dependent’s overall $5,000 annual contribution limit.
- Employer contributions must be made under a separate written plan, similar to dependent care assistance programs, and are subject to nondiscrimination testing.
- Administrative obligations include plan documentation, coordination with employees to avoid excess contributions, and reporting to the account trustee and IRS.
- It is currently uncertain whether these plans fall under ERISA; further guidance is expected.
- Employer contributions grow tax‑deferred and are not taxable to the employee. Employers may be able to deduct contributions as a business expense, subject to general employee‑benefit rules.
Employer Contributions Through Section 125 Cafeteria Plans
- Under Notice 2025‑68, a Trump account contribution program may be offered through a Section 125 cafeteria plan if the contribution is made to the Trump account of the employee’s dependent.
- Contributions cannot be made to the employee’s own Trump account through a cafeteria plan because that would constitute deferred compensation, while contributions to a dependent’s account generally do not.
- Section 125 contributions are not “deductible” by the employee in the traditional sense. Instead, the tax benefit comes from exclusion from gross income and wages.
- Under IRC §125(a), if a cafeteria plan meets statutory requirements, no amount is included in a participant’s gross income solely because they may choose between cash and qualified benefits. Salary‑reduction amounts used for qualified benefits are typically made pre‑tax, reducing taxable wages.
Gift Tax Considerations
Gift‑tax treatment of contributions to Trump accounts remains uncertain:
- Gifts qualify for the annual exclusion ($18,000 per recipient in 2026) only if they are gifts of a present interest.
- 529 plans receive statutory treatment as present‑interest gifts, but Trump accounts do not have similar language.
- Because Trump account withdrawals are restricted until age 18, the IRS may treat contributions as future‑interest gifts, which would not qualify for the annual exclusion and could require filing Form 709.
- The same uncertainty applies to generation‑skipping transfer tax (GSTT) for contributions to grandchildren or other skip persons.
- Employer contributions under a qualifying plan, as well as government contributions, are not treated as gifts.
- Until IRS guidance is issued, contributions by individuals to Trump accounts for children other than their own may be treated as taxable gifts.
Comparison to 529 Plans
- 529 plans are designed specifically for education savings. Contributions grow tax‑deferred, and withdrawals are tax‑free when used for qualified education expenses (tuition, fees, books, certain room and board).
- Trump accounts, by contrast, function as retirement accounts for children, operating much like traditional IRAs once the beneficiary turns 18.
- They are intended to provide early retirement investment opportunities without the earned‑income requirement that applies to IRAs.