The One Big Beautiful Bill, enacted on July 4, 2025, establishes a new type of tax-advantaged account designed for children younger than 18 years of age. These accounts, called “Trump Accounts,” can be opened by a parent on behalf of a minor child.
For children born between January 1, 2025, and December 31, 2028, the federal government provides a $1,000 initial contribution. Parents may still open a Trump Account for any U.S. citizen under age 18, even if the child is not eligible for this initial contribution. Parents may contribute up to $5,000 annually, and employers may also contribute to an employee’s child’s account, with those contributions counting toward the same annual limit. There is no income or means testing limitations on the child’s family, so the accounts are open to all minors who meet the age requirements.
Prior to the child attaining age 18, funds must be invested in low-fee, passively managed mutual funds or exchange-traded funds (“ETFs”), with fees capped at 0.1% of the account balance. While these limitations are intended to control costs and encourage diversification, they also restrict investment flexibility, including the ability to use age-based or target-date strategies. On January 1 of the year the child turns 18, the account automatically converts to a traditional individual retirement account (“IRA”) and is no longer subject to the investment limitations.
When evaluating whether a Trump Account makes sense, it is important to understand how these accounts function in practice.
Key Financial Features of Trump Accounts
Trump Accounts allow for tax-deferred growth, meaning contributions are not taxed until withdrawn. Withdrawals may be made penalty free at the same age-requirements imposed upon traditional IRA rules. If withdrawals are taken before such time, a 10% early withdrawal penalty applies. However, unlike traditional IRAs, Trump Accounts provide exceptions to the 10% early withdrawal penalty for certain uses, including qualified education expenses and up to $10,000 for a first-time home purchase. These exceptions are broader than those available under custodial IRAs. However, even when the penalty is waived, withdrawals are still subject to ordinary income tax.
Broader Financial Considerations
Funds held in a Trump Account may be considered when determining eligibility for certain federal assistance programs, such as SNAP. After the account converts to a traditional IRA at age 18, it becomes subject to the rules governing IRAs, including early withdrawal penalties in most circumstances.
There are still a number of unanswered questions regarding how Trump Accounts will operate in practice. One of the most significant uncertainties is whether the $5,000 annual contribution limit will be treated as a gift subject to the annual federal gift tax exclusion.
In addition, the strict withdrawal requirements associated with a Trump Account significantly limit access to funds during the child’s minority as these are meant to be a tool primarily used for retirement planning. Because withdrawals are generally not permitted before age 18 and the account automatically converts to a traditional IRA on January 1 of the year the child turns 18, contributions may be effectively inaccessible for many families’ planning purposes.
Finally, families whose primary goal is to save for education expenses may prefer to consider a Section 529 plan. While both accounts offer tax-advantaged growth, qualified withdrawals from a Section 529 plan for education expenses are generally tax-free at the federal level (and often at the state level as well). By contrast, even when Trump Account withdrawals are used for qualified education expenses, they remain subject to federal, state, and local income taxes.
For more information, or to seek counsel from our Taxation or Trusts & Estates practice groups, please reach out to request a consultation or call us at 216-696-1422.
*Please note that on April 30, 2026, Trump signed an executive order and made a reference in his announcement to a new retirement account he called the “Trump IRA”. There is no such thing as a Trump IRA.
