One notable new tax planning opportunity introduced by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is the creation of “Trump Accounts,” a new type of tax-advantaged savings account established under section 530A of the Internal Revenue Code. Trump Accounts are designed to help taxpayers save and build wealth for children in a tax-advantaged manner. Below, we analyze the key features, requirements, distribution rules by age range, the federal government’s $1,000 contribution, and areas where further clarification is needed.
A Trump Account is treated, for most tax purposes, similarly to a traditional Individual Retirement Account (IRA) under section 408(a), except as modified by section 530A or Treasury regulations. The income tax rules take effect for tax years beginning after December 31, 2025, and contributions are permitted starting July 4, 2026.
These accounts are for the exclusive benefit of an “eligible individual,” defined as someone who has not reached age 18 before the end of the calendar year in which the account is established. Eligible individuals must have a work-eligible Social Security number issued before the account establishment date and must not have previously had a Trump Account election made on their behalf. The account can be created either by the Secretary of the Treasury or by another person, such as a parent or guardian.
There are notable investment restrictions and contribution limits. Before the beneficiary turns 18, account funds must be invested in “eligible investments,” defined as mutual funds or ETFs that track a “qualified index” (e.g., S&P 500, Russell 2000, or other broad U.S. equity indices), do not use leverage, and have annual fees and expenses that do not exceed 0.1% of the investment balance. After age 18, the account is treated as a traditional IRA, with broader investment options permitted.
No deduction is allowed for contributions made before the beneficiary turns 18, and contributions must be made with after-tax dollars. The annual contribution limit before age 18 is $5,000 per beneficiary (indexed for inflation starting in 2028), excluding certain "exempt contributions" such as qualified rollovers, contributions from tax-exempt entities (e.g., 501(c)(3) organizations, state/local governments), or federal government pilot program contributions. Employer contributions of up to $2,500 annually (also indexed for inflation) are tax-free to the employee but count toward the $5,000 limit. Contributions are not permitted after the calendar year in which the beneficiary turns 17.
Distributions are generally not permitted before the beneficiary reaches age 18, except in the case of qualified rollovers or upon the beneficiary’s death. If the beneficiary dies before age 18, the account ceases to be a Trump Account, and the fair market value (less the investment in the contract) is included in the income of the recipient or the beneficiary’s estate. After age 18, the account is treated as a traditional IRA, with distributions taxed as ordinary income and generally subject to a 10% penalty for non-qualified withdrawals before age 59½.
The tax treatment and availability of distributions from Trump Accounts depend on the beneficiary’s age and the purpose of the withdrawal. Below is a breakdown…
Distributions are not permitted before the calendar year in which the beneficiary turns 18, except for qualified rollovers to another Trump Account (e.g., to change financial institutions) or upon death. If a second Trump Account is established for the same beneficiary, the second account loses its status and is treated as distributed, potentially triggering tax consequences.
Beginning January 1 of the year the beneficiary turns 18, the account is treated as a traditional IRA. Withdrawals are permitted for any purpose, subject to taxation. Withdrawals of after-tax contributions (e.g., from parents or relatives) are tax-free, while tax-free contributions (e.g., from employers, governments, or nonprofits) and investment earnings are taxed as ordinary income. A 10% early withdrawal penalty applies to non-qualified withdrawals before age 59½, unless used for:
After the beneficiary’s 31st birthday, the account continues to operate as a traditional IRA. The restriction on cumulative distributions (half the balance at age 18) no longer applies, and withdrawals can be made for any reason, subject to ordinary income tax and the 10% early withdrawal penalty before age 59½. Required Minimum Distributions (RMDs) begin at age 75.
Withdrawals for any purpose are taxed as ordinary income but are no longer subject to the 10% early withdrawal penalty—consistent with traditional IRA rules.
Contrary to some public commentary, withdrawals are taxed at ordinary income rates (not capital gains rates) regardless of purpose. This makes Trump Accounts less tax-favored than 529 plans (which allow tax-free withdrawals for education) or Roth IRAs (which allow tax-free withdrawals of earnings after age 59½).
A one-time $1,000 contribution will be made by the federal government to Trump Accounts for U.S. citizens born between January 1, 2025, and December 31, 2028, who have a work-eligible Social Security number. This contribution does not count toward the $5,000 annual limit and is considered a tax-free contribution. However, when withdrawn, it is taxed as ordinary income.
If a parent does not voluntarily open a Trump Account, the Secretary of the Treasury is instructed to establish one for eligible children identified through tax returns, provided the child is a qualifying child of a taxpayer (and, if applicable, their spouse) with a Social Security number. This automatic setup excludes some vulnerable children, such as those not claimed as dependents or whose caregivers do not file tax returns. The pilot program is projected to cost $14–17 billion over four years.
Several aspects of Trump Accounts require further guidance from the Treasury or IRS:
Trump Accounts have unique attributes, but they may not be the most flexible or tax-efficient option depending on the goal:
The $1,000 federal contribution is a clear benefit, but the rest of the Trump Account features are harder to justify over existing savings vehicles. Investment restrictions, ordinary income tax on gains, and limited uses mean they are best suited for a narrow group of savers. In most cases where the goal is defined (such as buying a car for a teenager, funding college, or building retirement savings) a 529 plan, UGMA/UTMA, or Roth IRA will provide better tax efficiency and flexibility. Even for qualified purposes like a first home or business start-up, a standard taxable investment account may deliver a better after-tax result. If you are considering one, it should be because it complements, rather than replaces, these other options. Contact us at (410) 497-5947 or schedule a confidential consultation with our team to learn more.
One notable new tax planning opportunity introduced by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is the creation of “Trump Accounts,” a new type of tax-advantaged savings account established under section 530A of the Internal Revenue Code. Trump Accounts are designed to help taxpayers save and build wealth for children in a tax-advantaged manner. Below, we analyze the key features, requirements, distribution rules by age range, the federal government’s $1,000 contribution, and areas where further clarification is needed.
A Trump Account is treated, for most tax purposes, similarly to a traditional Individual Retirement Account (IRA) under section 408(a), except as modified by section 530A or Treasury regulations. The income tax rules take effect for tax years beginning after December 31, 2025, and contributions are permitted starting July 4, 2026.
These accounts are for the exclusive benefit of an “eligible individual,” defined as someone who has not reached age 18 before the end of the calendar year in which the account is established. Eligible individuals must have a work-eligible Social Security number issued before the account establishment date and must not have previously had a Trump Account election made on their behalf. The account can be created either by the Secretary of the Treasury or by another person, such as a parent or guardian.
There are notable investment restrictions and contribution limits. Before the beneficiary turns 18, account funds must be invested in “eligible investments,” defined as mutual funds or ETFs that track a “qualified index” (e.g., S&P 500, Russell 2000, or other broad U.S. equity indices), do not use leverage, and have annual fees and expenses that do not exceed 0.1% of the investment balance. After age 18, the account is treated as a traditional IRA, with broader investment options permitted.
No deduction is allowed for contributions made before the beneficiary turns 18, and contributions must be made with after-tax dollars. The annual contribution limit before age 18 is $5,000 per beneficiary (indexed for inflation starting in 2028), excluding certain "exempt contributions" such as qualified rollovers, contributions from tax-exempt entities (e.g., 501(c)(3) organizations, state/local governments), or federal government pilot program contributions. Employer contributions of up to $2,500 annually (also indexed for inflation) are tax-free to the employee but count toward the $5,000 limit. Contributions are not permitted after the calendar year in which the beneficiary turns 17.
Distributions are generally not permitted before the beneficiary reaches age 18, except in the case of qualified rollovers or upon the beneficiary’s death. If the beneficiary dies before age 18, the account ceases to be a Trump Account, and the fair market value (less the investment in the contract) is included in the income of the recipient or the beneficiary’s estate. After age 18, the account is treated as a traditional IRA, with distributions taxed as ordinary income and generally subject to a 10% penalty for non-qualified withdrawals before age 59½.
The tax treatment and availability of distributions from Trump Accounts depend on the beneficiary’s age and the purpose of the withdrawal. Below is a breakdown…
Distributions are not permitted before the calendar year in which the beneficiary turns 18, except for qualified rollovers to another Trump Account (e.g., to change financial institutions) or upon death. If a second Trump Account is established for the same beneficiary, the second account loses its status and is treated as distributed, potentially triggering tax consequences.
Beginning January 1 of the year the beneficiary turns 18, the account is treated as a traditional IRA. Withdrawals are permitted for any purpose, subject to taxation. Withdrawals of after-tax contributions (e.g., from parents or relatives) are tax-free, while tax-free contributions (e.g., from employers, governments, or nonprofits) and investment earnings are taxed as ordinary income. A 10% early withdrawal penalty applies to non-qualified withdrawals before age 59½, unless used for:
After the beneficiary’s 31st birthday, the account continues to operate as a traditional IRA. The restriction on cumulative distributions (half the balance at age 18) no longer applies, and withdrawals can be made for any reason, subject to ordinary income tax and the 10% early withdrawal penalty before age 59½. Required Minimum Distributions (RMDs) begin at age 75.
Withdrawals for any purpose are taxed as ordinary income but are no longer subject to the 10% early withdrawal penalty—consistent with traditional IRA rules.
Contrary to some public commentary, withdrawals are taxed at ordinary income rates (not capital gains rates) regardless of purpose. This makes Trump Accounts less tax-favored than 529 plans (which allow tax-free withdrawals for education) or Roth IRAs (which allow tax-free withdrawals of earnings after age 59½).
A one-time $1,000 contribution will be made by the federal government to Trump Accounts for U.S. citizens born between January 1, 2025, and December 31, 2028, who have a work-eligible Social Security number. This contribution does not count toward the $5,000 annual limit and is considered a tax-free contribution. However, when withdrawn, it is taxed as ordinary income.
If a parent does not voluntarily open a Trump Account, the Secretary of the Treasury is instructed to establish one for eligible children identified through tax returns, provided the child is a qualifying child of a taxpayer (and, if applicable, their spouse) with a Social Security number. This automatic setup excludes some vulnerable children, such as those not claimed as dependents or whose caregivers do not file tax returns. The pilot program is projected to cost $14–17 billion over four years.
Several aspects of Trump Accounts require further guidance from the Treasury or IRS:
Trump Accounts have unique attributes, but they may not be the most flexible or tax-efficient option depending on the goal:
The $1,000 federal contribution is a clear benefit, but the rest of the Trump Account features are harder to justify over existing savings vehicles. Investment restrictions, ordinary income tax on gains, and limited uses mean they are best suited for a narrow group of savers. In most cases where the goal is defined (such as buying a car for a teenager, funding college, or building retirement savings) a 529 plan, UGMA/UTMA, or Roth IRA will provide better tax efficiency and flexibility. Even for qualified purposes like a first home or business start-up, a standard taxable investment account may deliver a better after-tax result. If you are considering one, it should be because it complements, rather than replaces, these other options. Contact us at (410) 497-5947 or schedule a confidential consultation with our team to learn more.
