By Ian Berger, JD
IRA Analyst
The One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, includes a new savings vehicle for children called “Trump accounts.” The rules surrounding these accounts are complicated, and many media outlets are reporting inaccurate information.
Several types of contributions can be made to Trump accounts.
Government Contributions
A one-time $1,000 contribution from the Federal government will be made to a Trump account for any child born between January 1, 2025, and December 31, 2028.
Private Contributions Before the Age-18 Year
A parent (or any other person) can contribute to a Trump account on behalf of a childin any calendar year before the year the child turns age 18. These contributions can be made even for children who do not qualify for the $1,000 government contribution (i.e., even if the child is born before 2025 or after 2028).
These contributions have special rules:
- Total annual contributions on behalf of a child can’t exceed $5,000, indexed for inflation starting in 2028. No contribution is allowed before July 4, 2026.
- Contributions must be after-tax (non-Roth) contributions. No deduction can be taken on these contributions.
- There is no requirement that the child have any compensation in order to have a contribution made on his behalf.
- Contributions (and earnings) cannot be withdrawn before the first day of the calendar year in which the child turns 18 years old. After the age-18 year, funds in the account can be withdrawn for any reason.
- Distributions after age 18 follow IRA withdrawal rules. Therefore, withdrawn contributions are tax-free, but earnings are subject to ordinary income tax and the 10% early distribution penalty, unless an exception to that penalty applies. (An earlier version of the OBBBA allowed for capital gains treatment under certain circumstances, but this was deleted in the final law.) Because of the “pro-rata rule,” a portion of each distribution will usually be taxable (and possibly subject to penalty).
- Funds can remain tax-deferred in the account until the normal IRA required beginning date for required minimum distributions (RMDs). (An earlier version of the OBBBA required withdrawals at age 31, but that was also removed.)
- Before the first day of the calendar year in which the child turns age 18, contributions must be invested in a low-cost mutual fund or exchange-traded fund that tracks the S&P 500 stock index or another index comprised primarily of U.S. companies.
- Contributions do not count towards IRA or workplace plan contribution limits.
Private Contributions On or After the Age-18 Year
Contributions can also be made to a Trump account in a calendar year on or after the year the child turns age 18. However, these contributions must follow the traditional (not Roth) IRA contribution rules. These rules include:
- Annual contributions cannot exceed the applicable dollar limit (for 2025, $7,000, and $8,000 for age 50 or older), and there must be earned compensation at least up to the amount of the contribution.
- Roth IRA contributions aren’t permitted. However, it appears that pre-age-18-year contributions (and earnings) could potentially be converted to a Roth IRA on or after the age-18 year.
- Contributions can be deductible if the individual is not an active plan participant in a workplace plan or, if he is an active participant, has modified adjusted gross income below the applicable phase-out dollar limit.
- Contributions (and earnings) can be withdrawn at any time but are subject to taxes and penalty like traditional IRAs. Accounts are subject to RMDs at the normal RMD age.
- Post-age-18-year contributions and earnings (along with all dollars contributed before the age-18 year) can be invested in any vehicle other than collectibles, life insurance and S-corporation stock (i.e., the same limitations as IRAs).
Other Contributions
OBBBA also allows for employer-provided contributions to Trump accounts for teenage employees and dependents of employees. Total contributions from this source are limited to $2,500, indexed for inflation starting in 2028. (OBBBA says that employer contributions count towards the annual $5,000 overall limit, but that may be a drafting error.) The legislation also permits contributions by the Federal government, any state government or any tax-exempt organization to a targeted group of children who have not turned age 18 by the end of the calendar year in which the contribution is made.
Stay Tuned
These accounts are expected to become available in 2026. Many details still need to be ironed out. In the meantime, you should consult with a knowledgeable financial advisor or tax professional to learn more about how a Trump account might fit into your financial plan. As always, stay tuned to the Slott Report for all the latest news and updates.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/how-trump-accounts-work/
