Understanding Trump Accounts: What Parents Need to Know About the New Child-Focused IRA

23 Jan 2026 Understanding Trump Accounts: What Parents Need to Know About the New Child-Focused IRA

The IRS has released a new round of guidance (IR-2025-117 and Notice 2025-68, both issued December 2, 2025) clarifying how a new type of retirement account, called a Trump Account, will work when it becomes available in 2026.

What is a Trump Account?

A Trump Account is a new type of tax-advantaged individual retirement account (IRA) designed for children under age 18, created by the One Big Beautiful Bill Act (OBBBA) and now governed by Section 530A of the Internal Revenue Code.

At its core, a Trump Account is intended to help families begin long-term investing for a child well before adulthood. Unlike traditional or Roth IRAs, Trump Accounts do not require the child to have earned income. Instead, parents and other permitted contributors may fund the account on the child’s behalf.

The IRS has confirmed that contributions cannot begin until July 4, 2026, and many administrative details are still being finalized.

Eligibility

A Trump Account may be established for an individual with a social security number who has not turned 18 before the end of the calendar year in which the election to open the account is made. The election is expected to be made by a parent, legal guardian, adult sibling, or grandparent using Form 4547, which the IRS has released in draft form but has not yet finalized.

Although the IRS has not yet published full custodial rules, Trump Accounts are expected to operate similarly to custodial IRAs, with an adult acting as trustee or custodian until the child is legally permitted to control the account.

How do Trump Accounts work?

Contributions

Under current guidance, total contributions to a Trump Account are generally capped at $5,000 per year, aggregated across all sources. This limit applies regardless of whether contributions come from parents, relatives, employers, or other eligible contributors. Exceptions to the $5,000 cap include the $1,000 pilot program contribution (discussed below) and qualified general contributions from governments or charities, such as the recent $6.25 billion pledge from Michael and Susan Dell. Beginning after 2027, this annual limit will be indexed for inflation.

Employers may contribute up to $2,500 per year to a Trump Account for an employee’s child through an employer Trump Account contribution program. These contributions are excluded from the employee’s taxable income, but they do count toward the $5,000 annual limit. Employers can also offer contributions to a dependent’s Trump Account through a salary reduction arrangement under a Section 125 cafeteria plan, which would allow employees to redirect salary on a pre-tax basis into the account.

Certain governmental entities and charitable organizations may also make contributions to Trump Accounts for a qualified group of beneficiaries, such as children in foster care or other defined populations.

Investments

Funds held in a Trump Account must be invested in broad-based U.S. equity index funds, such as mutual funds or exchange-traded funds that track the S&P 500 or another index primarily composed of American companies. Individual stocks, cryptocurrencies, and alternative investments are not permitted under current rules.

Withdrawals and tax treatment

Trump Accounts are subject to strict withdrawal limitations. No distributions may be taken before January 1 of the year in which the child turns 18, except for limited circumstances that have not yet been fully defined by the IRS.

After the child reaches that threshold, the account is generally treated as a traditional IRA. Withdrawals are taxed as ordinary income, and early withdrawal penalties may apply if funds are accessed before age 59½, unless a qualifying exception applies.  IRA basis rules also apply, which only tax the earnings and pre-tax contributions portion of withdrawals.

$1,000 pilot program contribution

Separate from regular contributions, the federal government will make a one-time $1,000 pilot contribution to certain Trump Accounts. This feature has received much attention, but it applies only to a limited group of children.

To qualify, the child must be:

• • A U.S. citizen, and
  • Born between January 1, 2025, and December 31, 2028, and
  • Properly enrolled through a timely Trump Account election completed by the qualifying child’s parent or legal guardian.

This $1,000 contribution does not count toward the annual $5,000 contribution limit. However, children born outside the 2025–2028 window will not receive this federal deposit unless Congress extends or modifies the program in the future.

How Trump accounts compare to other common options

Many parents are already familiar with Roth IRAs, custodial Roth IRAs, and 529 plans, and may wonder how Trump Accounts fit alongside or compete with those tools.

This comparison reflects current guidance and highlights a key point: Trump Accounts are designed for long-term retirement-style savings, not education funding or short-term flexibility.

What we don’t know yet

Although the December 2025 guidance answers many foundational questions, uncertainties remain. The IRS has not yet finalized rules addressing:

• • Whether funds can be rolled into Trump Accounts from 529 plans or other custodial accounts
  • How Trump Accounts will be treated for state income tax purposes
  • Detailed trustee and custodial requirements

The IRS has explicitly requested public comments on several of these issues, signaling that additional guidance is expected in 2026.

What can parents do now?

Even though contributions cannot begin until July 2026, families can take steps now by familiarizing themselves with the rules, tracking eligibility for children born between 2025 and 2028, and speaking with a tax or financial advisor about how Trump Accounts may fit into their broader planning strategy.

Parents who already use 529 plans or custodial Roth IRAs should be especially cautious about assuming Trump Accounts are a replacement. At least for now, they appear to serve a distinct and more restrictive purpose.

A new tool, still taking shape

Trump Accounts are still very much a work in progress. The IRS’s December 2, 2025, notice provides clarity on structure and intent, while also making clear that important questions remain unresolved.

For families trying to make sense of these accounts, the key takeaway is this: Trump Accounts are real, they are coming, and they may be useful – but the full picture will not be clear until additional IRS guidance is released.

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