OBBBA’s New Trump Accounts: How to Win
- Viktoriya Barsukova, EA, MBA
- 19 hours ago
- 6 min read
The One Big Beautiful Bill Act (OBBBA) establishes Trump Accounts, which are basically traditional IRAs with some twists for under-age-18 account beneficiaries.
Some are skeptical about whether Trump Accounts are an attractive tax-favored savings option, but we disagree. Played right, they deliver a win. Here’s what you need to know.
Pilot Program Offers Free Trump Account Money for Newborns
Free money is always a good thing, right? Right.
Under a pilot program for Trump Accounts, you as a parent can make an income tax election on behalf of your newborn who is born as a U.S. citizen in 2025–2028. The IRS will explain how to make the election, so stay tuned for that.
Once you make the election, your federal government will enroll your newborn in the pilot program and fund a Trump Account with $1,000.
In other words, the feds will jump-start a Trump Account for your newborn with $1,000 of free money. In addition, you can start making annual contributions of up to $5,000 to the account beginning July 4, 2026.
Your newborn must have a Social Security number when you make the election to participate in the pilot program.
How Trump Accounts Will Work
Starting on July 4, 2026, you and any other individual, such as a grandparent, can begin making annual Trump Account contributions of up to a combined limit of $5,000 (adjusted for inflation starting in 2028) until the year your child turns 18.
Up to Age 18
No deduction is allowed for these under-age-18 contributions. But the money inside the account grows tax-deferred.
The $1,000 pilot program contribution by the government doesn’t count against the $5,000 annual limit.
So, if your child is born this year or next year, up to $5,000 could be contributed to the child’s Trump Account next year, beginning July 4, 2026, on top of the $1,000 of free money. After 2026, up to $5,000 (adjusted for inflation starting in 2028) could be contributed each year until the year the child turns 18.
To be an eligible Trump Account beneficiary for whom these under-age-18 contributions are made, your child must have a Social Security number.
No distributions can be taken from the Trump Account before the year your child turns 18. Until then, the Trump Account balance can grow federal-income-tax-deferred (that is, no federal tax is incurred on the money while it’s growing inside the account).
Age 18 and Older
Starting with the year your child turns 18, the Trump Account transitions into a standard traditional IRA subject to the familiar federal income tax rules governing contributions to and distributions from traditional IRAs.
This means that starting with the year your child turns 18, he or she must have earned income to make any further contributions to the former Trump Account, which is now a traditional IRA.
Also, starting with the year your child turns 18, distributions can be taken from the former Trump Account under the rules that apply to traditional IRAs.
The former Trump Account will have a tax basis equal to the sum of any non-deductible contributions made before the account turned into a traditional IRA (meaning contributions subject to the $5,000 annual limit with applicable inflation adjustments) plus any non-deductible contributions made after the account turns into a traditional IRA.
The account gets no basis from:
the $1,000 of free money from the government, if applicable;
any tax-free employer contributions explained below, if applicable; or
any tax-free qualified general contributions explained below, if applicable.
The taxable portion of any distribution taken before age 59 1/2 will be hit with the 10 percent early withdrawal penalty tax unless an exception applies. See Know the 15 Exceptions to the 10 Percent Penalty on Early IRA Withdrawals.
Permitted Trump Account Investments
Until the year your child turns 18, the Trump Account can only invest in so-called eligible investments.
These are mutual funds or ETFs that:
track a qualified index,
do not use leverage,
do not charge fees of more than 0.1 percent of the invested balance, and
meet other criteria that may be set forth by the IRS.
A qualified index means the S&P 500 stock market index or any other index that comprises equity investments in primarily U.S. companies and for which regulated futures contracts are traded on a qualified board or exchange.
A qualified index cannot be an industry-specific or sector-specific index, but it can be an index based on market capitalization.
Employer Contributions to Trump Accounts
An employer can set up a Trump Account contribution program.
Starting on July 4, 2026, the employer can contribute up to $2,500 annually (adjusted for inflation starting in 2028) to a Trump Account set up for an eligible under-age-18 employee or an employee’s eligible under-age-18 dependent.
The employer contribution counts against the $5,000 annual contribution limit. Employer contributions to the Trump Account are:
tax-free to the employee, and
deductible by the employer as an employee welfare benefit.
A Trump Account contribution program is a written plan established for the exclusive benefit of employees in order to make contributions to the Trump Accounts of under-age-18 employees or under-age-18 dependents of employees. The plan’s contributions cannot discriminate in favor of highly compensated employees or their dependents.
Other Contributions to Trump Accounts
State, local, or tribal governments and 501(c)(3) organizations can also make tax-free contributions to Trump Accounts, under rules to be established by the IRS.
These so-called qualified general contributions are not subject to the $5,000 annual contribution limit and must be provided to all children within a qualified group, as defined.
Whether these qualified general contributions will ever become a thing remains to be seen.
How You Can Win with a Trump Account
As we said at the beginning, not everyone is convinced that Trump Accounts are attractive.
But consider this: say you put $5,000 a year into your child’s Trump Account for the first 17 years of the child’s life after bagging the $1,000 of free money from the government in Year 1.
If the account earns 5 percent annually on a tax-deferred basis, it would be worth about $138,000 by the time your child turns 18.
Say the child suddenly becomes a mature decision-maker at age 18 (or you forget to mention the account for a decade or two) and decides to leave the money invested in what’s now a traditional IRA for 42 years, until reaching age 60. If the account continues to earn 5 percent annually on a tax-deferred basis, the $138,000 would grow to about $1.2 million. Not bad!
And once your child has earned income, he or she can make annual contributions to what is now a traditional IRA and have an even bigger balance at age 60.
Key point. A former Trump Account can be converted from traditional IRA status into Roth IRA status if that seems like a good idea at some point in your child’s future.
Of course, there are other ways that you can help your children.
You can put money into a tax-favored Section 529 college savings account or a tax-favored Coverdell Education Savings Account. But if you want to reap the advertised tax advantage, the money in those accounts must be spent on qualified education expenses.
You could fund a custodial account for your child, but there’s no tax-deferral advantage, and the income might get hit with the dreaded kiddie tax, possibly until the child turns 24.
You could set up a trust for your child, but there’s no tax-deferral advantage, and the kiddie tax could be an issue there too. And trust income must be distributed to your child; otherwise it will be taxed under the unfavorable federal income tax regime for trusts.
Let’s face it: there’s no foolproof way to help your children financially. You have to make your choices and live with them.
Takeaways
Trump Accounts may sound unconventional, but they can pack a powerful punch when used strategically.
With $1,000 of free seed money for eligible newborns, annual contributions of up to $5,000, possible employer and community contributions, and decades of tax-deferred growth, these accounts could become a long-term wealth-building tool for your child.
While not a one-size-fits-all solution, Trump Accounts offer an attractive alternative—or complement—to 529 plans, custodial accounts, and trusts.
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References
IRC Section 6434.
IRC Section 6434(e).
IRC Sections 530A(b)(1)(C)(i)(I); 530A(c)(2)(A).
IRC Section 530A(c)(1).
IRC Section 530A(c)(2)(B)(iii).
IRC Section 530A(c)(1).
IRC Section 530A(b)(2).
IRC Section 530A(d)(1).
IRC Section 530A(a).
IRC Section 530A(d)(2).
IRC Section 128.
IRC Section 128(c).
IRC Section 128(c), cross-referencing IRC Section 129(d). Section 129 sets forth the rules for employer-sponsored dependent care assistance programs.
IRC Section 530A(f).
W. Murray Bradford, CPA
Publisher
Tax Reduction Letter
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