When the 2025 budget reconciliation bill was passed, it included a new type of tax-advantaged investment account for children: Trump Accounts. These accounts function similarly to a traditional IRA, and are designed to give those under age 18 a jump start for long-term savings goals. You can begin the process of opening one as soon as today and start contributing to it come July.
While some details on Trump Accounts are still being finalized, here’s what we know right now.
Who is eligible for a Trump Account?
Any child with a valid Social Security number who is under age 18 by the end of the year the account is opened is eligible for a Trump Account. While the child technically owns the account, it must be opened and administered by an adult (a legal guardian, parent, adult sibling or grandparent) until the child turns 18.
Who can contribute to a Trump Account – and how much can they give?
Contributions to a Trump Account are capped at $5,000 per child per year (which will be adjusted for inflation after 2027). Any adult – including parents, relatives, friends or others – can make after-tax contributions toward that annual limit.
Employers can also choose to contribute up to $2,500 annually on behalf of a minor employee or an employee’s child. These employer contributions are not treated as taxable income, but they do count toward the $5,000 cap. In some cases, community organizations may also help fund Trump Accounts for eligible children, although those contributions do not count toward the annual limit.
Children born between January 1, 2025, and December 31, 2028, can also elect to receive a special one-time contribution of $1,000 from the U.S. Treasury. This extra savings boost also does not count towards the $5,000 annual limit.
How are Trump Account funds invested?
Once contributions are made, the money in a Trump Account is automatically invested into low-cost mutual funds or ETFs that track a U.S. stock index – so there’s no need to manage the investments yourself. However, if you choose to monitor the account’s progress, you create an opportunity to turn a mostly hands-off process into a real-life investment lesson for your child.
What happens when the child turns 18?
When the child turns 18, the account is treated like a traditional IRA for tax purposes. At that point, the child can choose to continue using it for long-term savings – allowing assets to grow tax-deferred – or make withdrawals under traditional IRA rules, meaning they’d generally be subject to ordinary income tax.
Withdrawals made before age 59½ may also be subject to a 10% early withdrawal penalty. However, there are exceptions. First-time homebuyers can withdraw up to $10,000 without penalty, and funds can also be used on qualified education and medical expenses without triggering the penalty – though income tax still applies.
After age 59½, funds can be withdrawn for any purpose without penalty, though income tax would still apply here as well. This is similar to how traditional IRA withdrawals work, underscoring how Trump Accounts are primarily meant to be used for long-term savings goals.
How can Trump Accounts complement other savings strategies for minors?
Trump Accounts can serve as a flexible addition to other savings options for children, such as 529 plans and custodial investment accounts. While 529 plans are designed particularly for education expenses, Trump Accounts aren’t limited to a single goal – and can ultimately support long-term savings, similar to a retirement account. Compared with custodial accounts like UTMAs, which allow funds to be used more during childhood, Trump Accounts are designed for long-term growth, with earnings growing tax-deferred while the funds remain in the account. Each of these account types serve a different purpose, so a combination of savings vehicles may help you balance your family’s short-term needs with long-term goals.
Many details of these accounts are still in development, so check with your Baird Financial Advisor team for updates. Together, you can decide if and how these accounts fit into your family’s long-term wealth plans.
This information has been developed by a member of Baird Wealth Solutions Group, a team of wealth management specialists who provide support to Baird Financial Advisor teams. The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.
