Trump bank accounts for children under 18 and alternatives

The Working Families Tax Cuts allows parents, guardians and other authorized individuals to establish a new type of individual retirement account for their children, called Trump Accounts.

The account is for a child who has not turned age 18 before the end of the calendar year in which the election is made and has a valid Social Security number. It features a pilot program contribution of $1,000 provided for by the federal government for children born between Jan. 1, 2025, and Dec. 31, 2028, and who are U.S. citizens with a valid Social Security number. 

A parent, adult sibling, or grandparent (in that order) may open a Trump account on a child’s behalf for any child who will be under 18 at the end of 2026.

Family members are also able to make contributions up to an aggregate limit of $5,000 per year (not counting the government nor the non-profit amounts contributed) although no annual contribution is specifically required.

Furthermore, an employer may make a tax-deductible contribution to a Trump Account of the employee or the employee’s dependent up to $2,500 per year (which counts against the $5,000 annual limit) under an employer’s Trump Account contribution program, and the contribution will not count toward the employee’s nor the child’s taxable income.

The annual contribution limits are indexed to inflation and will adjust starting after 2027.

Foundations and non-profits may voluntarily contribute in a non-discriminatory manner.

Most notably, the Michael & Susan Dell Foundation committed $6.25 billion to contribute $250 to every child under the age of 11.

Contributions to Trump Accounts cannot be made before July 4, 2026.

The funds in Trump Accounts must be invested in certain mutual funds or exchange-traded funds that track the S&P 500 or another index of primarily American equities.

Amounts generally cannot be withdrawn from Trump Accounts before January 1st of the calendar year in which the child turns 18 years old. After that point, the account generally is treated as a traditional IRA and generally is subject to the same rules as other traditional IRAs.

Tax effects:

The contributions by non-family (the $1000 arranged by the feds, non-profits and foundations, and employers) are not regarded as taxable income for the child beneficiary. Investment returns on these contributions grow tax-free, and all withdrawals would be taxed as ordinary income.

Contributions by family are not tax deductible and therefore need to be accounted for separately on an ongoing basis, inasmuch as such contributions are not taxable upon withdrawal, although all investment earnings are.

Is it the best vehicle for long-term savings for children?

No. But it is an incentive to get started, and it currently includes free money for all children under 11, and could include future contributions over time from foundations and non-profits that decide to participate, now or later.  Therefore, I recommend that every child gets one.

An alternative might be the 529 Plan ( https://www.irs.gov/newsroom/529-plans-questions-and-answers ) in existence for about 30 years which allows non-deductible contributions to an investment vehicle that grows tax-free and is not taxable at all upon withdrawal if used for private school or college education.  A few other benefits apply.

An even stronger alternative is for the working child of a business owner -or a working teenager – to set up a $7,000 annual Roth IRA contribution into an appropriate investment account. The Roth IRA contributions are not tax deductible, but most likely your child won’t have taxable income anyway. Upon withdrawal, none of the proceeds are taxable.

However, the Trump account does not force you to use it for education or any other specific expenditure either. And with wise planning around and after the child’s 18^th birthday, the “traditional” type Trump account could be easily converted to a non-taxable Roth retirement account because the child’s taxable income at 18-22 years of age is nil or very low – from which Roth IRA retirement accounts future withdrawals are tax-free.