Trump Accounts for Children

Trump Accounts are a new type of retirement account for children, created under the One Big Beautiful Bill Act (OBBBA) and clarified through IRS Notice 2025‑68[1]. They’re designed to give kids a long‑term financial foundation, but they come with rules and limitations that families should understand before deciding whether to open one.

At their core, Trump Accounts function as traditional IRAs for minors. They must be opened specifically as Trump Accounts (existing IRAs can’t be converted) and they can only be established for children under age 18 who already have a Social Security number. An authorized adult, usually a parent or guardian, completes the creation election and oversees the account until the child reaches adulthood.

To help families understand how these accounts work, here are the key features in a clear, approachable format.

What Trump Accounts Are Designed to Do

Trump Accounts are meant to support long‑term retirement savings for children, not short‑term goals. They offer a structured way to invest for the future, with guidelines that help reinforce long-term investing.

Key features include:

• A dedicated retirement account for minors under Section 530A
• No earned income requirement for contributions
• Separate contribution limits from traditional and Roth IRAs
• A long‑term focus, with strict rules before age 18

This structure can make Trump Accounts a useful planning consideration for some families. They are a complement to, and not a replacement for, 529 plans, UTMA/UGMA accounts, ABLE accounts or Roth IRAs for kids.

How Contributions Work (and What the IRS Clarified)

During the “growth period”, defined as the years before the child turns 18, contributions follow specific rules. Families can contribute up to $5,000 per year, from all sources combined. This limit begins adjusting for inflation in 2028.

Personal contributions from parents, grandparents, or others are always made with after‑tax dollars, which means they create basis in the account. That basis becomes important later for withdrawals or Roth conversions.

IRS Notice 2025‑68 also clarified:

• Employer contributions are allowed up to $2,500 per year under a compliant Section 128(c) employer contribution program.
• These employer contributions are not taxable to the employee if made under a compliant program
• The $1,000 federal pilot contribution for children born 2025–2028 does not count toward the annual limit
• The pilot contribution is treated as pre‑tax, not basis

Note: This mix of after‑tax and pre‑tax dollars is a significant technical feature of Trump Accounts.

Investment Rules During the Growth Period

The IRS intentionally designed Trump Accounts to be simple and low‑risk during childhood. Notice 2025‑68 outlines a narrow investment menu that custodians must follow.

During the growth period, investments must:

• Be low‑cost mutual funds or ETFs
• Track broad U.S. equity indexes
• Have expense ratios of 0.10% or less
• Avoid leverage, sector funds, and active management

These rules help ensure that the account stays focused on long‑term, diversified growth rather than speculation.

Withdrawal Rules Before Age 18

Withdrawals are not allowed during the growth period, except in very limited situations such as the death of the beneficiary, removal of excess contributions, or a qualified rollover. A qualified rollover is limited to either a direct, trustee-to-trustee transfer of the entire balance from one Trump Account to another to change institutions during the growth period, or specific qualified ABLE rollover at age 17. Otherwise, the funds must remain untouched until the child reaches adulthood.

What Changes at Age 18

On January 1 of the year the child turns 18, the growth period ends. At that point, the account becomes a traditional IRA, and most Trump Account-specific restrictions fall away.

After age 18:

• Standard IRA withdrawal rules apply
• Early withdrawals may be subject to taxes and penalties
• The account cannot be combined with other IRAs for certain tax calculations
• It cannot be converted into a SEP or SIMPLE IRA

Once the account is treated as a traditional IRA, the beneficiary also becomes eligible for the standard penalty‑free exceptions under Internal Revenue Code Section 72(t). While income taxes may still apply, the 10% early‑withdrawal penalty does not apply for certain qualified reasons, most commonly higher‑education expenses and first‑time home purchases. These exceptions do not apply during the growth period, but they do become available after the growth period ends, which is January 1 of the calendar year in which the account beneficiary turns 18. At that point, the account is treated as a traditional IRA for tax purposes.

This transition is automatic and does not require a new election.

Tax Treatment and Roth Conversions

Because Trump Accounts contain both after‑tax and pre‑tax dollars, families should understand how taxation works.

After‑tax contributions (basis):

• Come from parents or grandparents
• Are not taxable when withdrawn or converted

Pre‑tax amounts include:

• The $1,000 pilot contribution
• Employer contributions
• All investment earnings

If the account owner chooses to convert to a Roth IRA, the pro‑rata rule applies. The pro-rata rule requires the IRS to treat all your traditional IRA money as one combined pool when you do a Roth conversion. Basis cannot be isolated or converted separately; any conversion must include a proportional share of taxable and non‑taxable dollars.

However, even though Roth conversions from Trump Accounts must follow the pro‑rata rule, there are still situations where the tax impact can be very small or even zero. This isn’t a loophole. It’s simply how the tax code works when you combine:

• After‑tax basis inside the account
• A young adult with very low income
• The standard deduction, which may reduce or eliminate taxable income
• The ability to spread conversions over multiple years

Together, these factors, among others, may create a window where a Roth conversion can reduce or eliminate the income tax due by the beneficiary.

How Trump Accounts Are Opened

Trump Accounts must be opened through financial institutions that choose to offer them. The federal government does not act as custodian. Parents or guardians will manage the account until the child turns 18, and the official site, trumpaccounts.gov, will publish a list of participating custodians as the launch date approaches.

In Closing

Trump Accounts can be a meaningful way to give a child a long‑term financial head start, especially for families who already feel confident in their own retirement savings and can comfortably set money aside for the future. They may be less suitable for households that need flexibility for education or early‑adult expenses.

Because a Trump Account is just one part of a family’s broader strategy, it’s important to understand how it fits alongside 529 plans, custodial accounts, and your own retirement goals. If you’re considering opening one, this is a good time to talk with your advisor. They can help you see how a Trump Account complements your overall plan and help make sure every dollar you save is working toward the future you want for your child and your family.