Trump Accounts: What Parents Need to Know Before Saving for Kids
Introduction
Trump accounts are a new tax-advantaged savings option designed to help families invest for a child’s future. Beginning after July 4, 2026, eligible children may receive a federal contribution, while parents and grandparents can make annual contributions to support long-term financial goals.
What Changed and Why It Matters
A new tax-advantaged savings account for children is scheduled to become available after July 4, 2026, giving parents, grandparents and others another way to build long-term wealth for the next generation.
But despite the name recognition and government seed money, financial planner Jeff Levine, CFP, chief planning officer at Focus Partners Wealth, says the accounts won’t replace existing savings strategies for many families.
Instead, Levine said Trump accounts should be viewed as another tool, one that may work particularly well for long-term investing but is less compelling for parents whose primary goal is paying for college.
What This Means for You
- Children born between 2025 and 2028 may receive a $1,000 federal contribution once a Trump account is established.
- Families may contribute up to $5,000 annually, regardless of whether the child has earned income.
- Money generally cannot be withdrawn before age 18.
- If college is your primary goal, a 529 plan remains the better choice for many families.
- Trump accounts may become especially valuable as long-term retirement savings vehicles because of decades of investment growth.
Trump Accounts Are Designed to Encourage Long-Term Investing
A Trump account is a new tax-advantaged savings account created under the One Big Beautiful Bill Act. It is available for children under age 18 and is intended to help families begin saving early for future financial goals.
Those goals can include higher education, purchasing a home or retirement decades later.
The accounts are notable because they encourage investing from birth, allowing investment returns to compound over an unusually long period.
“The power of compounding is amazing,” Levine said.
He noted that financial advisers routinely encourage workers to begin saving when they first enter the workforce. Trump accounts simply move that starting point back to infancy.
Children May Receive Government Seed Money
One of the biggest attractions is the government’s initial contribution.
Children born between 2025 and 2028 are eligible for a $1,000 federal contribution once an account is established.
That amount does not count toward the annual contribution limit.
Levine also noted that some children living in moderate- and lower-income communities could receive an additional $250 contribution funded through a philanthropic initiative supported by the Dell family.
Combined, some eligible children could begin with $1,250 already invested.
Families Can Contribute Up to $5,000 Each Year
Unlike an Individual Retirement Account (IRA), which generally requires earned income to make contributions, Trump accounts have no earned-income requirement.
Parents, grandparents or others may contribute up to $5,000 annually, with the limit expected to increase over time through inflation adjustments.
Because contributions are made with after-tax dollars, families do not receive an upfront tax deduction. Instead, the tax benefit comes from allowing investment earnings to grow over many years before withdrawals begin.
Investment Choices Are Intentionally Limited
Unlike many brokerage accounts, Trump accounts cannot hold virtually any investment.
The law generally limits investments to low-cost funds that track broad U.S. stock indexes.
That restriction reduces flexibility but also keeps portfolios relatively simple.
Levine said broad-market index funds have historically served long-term investors well, particularly young investors with many decades before retirement.
Withdrawals Are Partially Taxable
Cost basis refers to the amount originally contributed to an investment.
Because contributions are made after taxes have already been paid, that portion is generally not taxed again when money is withdrawn.
Investment earnings are treated differently.
Levine explained that if $5,000 grows to $20,000, only the original contribution represents tax-free basis. The earnings portion of future withdrawals is generally taxed as ordinary income.
No withdrawals are generally permitted until the child reaches age 18, when the account begins functioning much like a traditional IRA.
“The power of compounding is amazing,” Levine said. “Imagine starting not at age 20 but at age zero.”
A 529 Plan Remains the Better Choice for Many College Savers
A 529 plan is a tax-advantaged education savings account that allows investment earnings to be withdrawn tax-free when used for qualified education expenses.
Levine said that advantage alone gives many families a compelling reason to continue prioritizing 529 plans over Trump accounts when paying for college is the objective.