With the enactment of the One Big Beautiful Bill Act in July 2025, Congress introduced a new class of tax-advantaged savings vehicles for minors known as Trump accounts. Here’s a breakdown of the key features.

What are they?

Trump accounts are custodial savings and investment accounts that can be established for U.S. children under age 18 to encourage long-term financial security. Contributions are made on an after-tax basis, and investments grow tax deferred until withdrawn. Withdrawals are generally prohibited until the year the child reaches age 18. These accounts are specifically targeted toward children.

Who is eligible?

Beginning July 2026, Trump accounts can be established for children who are U.S. citizens, have a valid Social Security number, and are under age 18. In addition, the new law creates a pilot program in which qualified account holders born between January 1, 2025, and December 31, 2028, are eligible for a one-time government contribution of $1,000. The Department of the Treasury may automatically enroll these children into the program. Children born outside of the 2025–2028 window, but who are still under age 18, qualify for a Trump account, though they will not receive the $1,000 seed grant. Trump accounts do not have income limits or restrictions.

What are the contribution limits?

Parents, relatives, and others may contribute up to $5,000 per child annually. The $5,000 cap will be adjusted for inflation in future years. Contributions are made with after-tax dollars.

Employers are able to set up plans under which contributions may be made to employees’ Trump accounts or the Trump accounts of employees’ dependents. Up to $2,500 may be contributed annually for each employee. Contributions made by an employer to a Trump account on behalf of an employee under such a plan are not included in the employee’s gross income.

Charities and governmental entities may also make contributions to Trump accounts under certain conditions. Any such contributions by charities and governmental entities do not count toward the $5,000 annual limit. Also, the $1,000 federal seed contribution is excluded from the $5,000 annual contribution limit.

What is the tax treatment for these accounts?

Contributions from individuals are made with after-tax dollars, meaning they are not deductible but will eventually be able to be withdrawn tax-free. Employer, charitable, and government contributions, as well as the $1,000 seed grant, are not considered income at the time the contribution is made but will be included in income upon distribution.

Earnings on all contributions grow tax deferred. When the account holder reaches age 18 and is able to take distributions, the account may contain amounts that are not taxable upon distribution (amounts contributed by parents and relatives) as well as amounts that are taxable upon distribution (earnings, and any contributions made by an employer, charitable or governmental entity, or as a result of the $1,000 seed grant). The same general rules that apply to IRAs apply to Trump accounts, including:

• If there are non-taxable parent or individual contributions in the account, any distribution is considered to consist of a proportionate share of taxable and non-taxable amounts.
• Taxable distributions are taxed at ordinary income rates, and a 10% additional penalty tax applies if a distribution is made prior to age 59½ unless an exception applies.
• Exceptions to the 10% penalty include withdrawals for higher education costs and up to $10,000 for a first-time home purchase.

How are the funds invested?

Trump account funds are automatically invested in a mutual fund or exchange-traded fund that tracks the returns of a qualified index, such as one tracking the S&P 500. Account holders cannot choose between multiple funds or adjust the investment mix, and the allocation is fixed and limited to U.S. equities. Funds must have annual fees no higher than 0.1%.

What’s next?

The IRS is expected to issue additional regulations and guidance that clarify the administrative details of the new law.

All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.

Mutual funds and exchange-traded funds are sold by prospectus. Consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional.

The performance of an unmanaged index is not indicative of the performance of any specific security. Individuals cannot invest directly in any index. Past performance is no guarantee of future results. Actual results will vary.