The introduction of Trump Accounts has sparked considerable discussion, drawing attention for the federal government’s commitment to deposit a $1,000 pilot contribution into new accounts created for qualifying newborns. Various companies and philanthropic organizations have also pledged to contribute, adding to the growing interest. However, as official details continue to be refined and disseminated through the Treasury, IRS, White House releases, and the dedicated trumpaccounts.gov website, many parents are seeking clarity on how these accounts operate.
What Exactly Are Trump Accounts?
Trump Accounts function as IRA-style savings mechanisms catered specifically to eligible children. Like traditional Individual Retirement Accounts, funds placed within these accounts enjoy tax-deferred growth. Nonetheless, distinct rules differentiate Trump Accounts from conventional IRAs, particularly concerning contributions, permitted withdrawals, and approved usages of funds. One notable restriction is that the money cannot be accessed before the child reaches 18 years of age.
Eligibility Criteria for Establishing Trump Accounts
To qualify for a Trump Account, a child must be under 18 by the end of the calendar year when the account is opened, as stipulated by IRS regulations. The child must also be a U.S. citizen holding a valid Social Security number. Each child is allowed only one Trump Account, which must be opened by an "authorized individual," typically a legal guardian or parent. The IRS provides further specifics on who qualifies as an authorized individual.
Qualifying for the $1,000 Federal Contribution
Children born between January 1, 2025, and December 31, 2028, and eligible to have a Trump Account, may receive a single $1,000 payment from the federal government. This payment is contingent upon an authorized individual opening a Trump Account on behalf of the child and being able to claim the child as a dependent on their tax return, according to tax professional David Mellem with Ashwaubenon Tax Professionals.
How to Open a Trump Account
Parents or guardians must actively establish an account by submitting Form 4547. This form also serves to elect the $1,000 pilot contribution for eligible children. Currently, the recommended method is electronic submission of this form in conjunction with the 2025 federal income tax return. Starting in the summer of 2025, the Treasury Department will launch an online portal allowing parents to create accounts more directly.
Completion of Form 4547 seemingly requires the parent’s Social Security number; however, IRS instructions note that if a parent is a resident or nonresident alien without eligibility for a Social Security number, they may instead provide an IRS individual taxpayer identification number.
Account Activation and Timing of Contributions
The IRS indicates that after the authorized individual submits Form 4547, beginning in May 2026, the Treasury or its designated agent will contact them to proceed through authentication steps to activate and finalize opening the child’s Trump Account.
The federal government will not deposit the pilot $1,000 contribution any sooner than July 4, 2026. The Treasury aims to make these contributions promptly once the election is confirmed and the account's trustee verifies the account’s establishment.
Who Else Can Contribute Beyond the Government?
Additional contributions may be made by employers, family members, friends, state entities, qualified nonprofit organizations, and philanthropists, each subject to different rules and limitations:
- Employers: They can make deductible contributions to an employee’s child’s account, which remain tax-free to the employee. The employer’s maximum contribution is $2,500 annually per employee (not per child), with this limit indexed for cost of living starting after 2027. Employers like JPMorgan Chase and BlackRock have indicated plans to match government seed contributions for Trump Accounts.
- Family and Friends: Such contributors may also add funds but do not receive deductions for their donations.
- States, Nonprofits, and Philanthropists: These groups may contribute to specified "qualified classes" of children, e.g., all children born in a certain year or residing in certain regions. For instance, Michael Dell has pledged $250 seed contributions for children from middle- to lower-income families within designated groups.
Importantly, combined family and employer contributions must not exceed $5,000 per year per account, with adjustments for inflation starting in 2027. Contributions from government and nonprofit entities, however, do not count toward this cap.
Investment Options and Account Management
Funds within Trump Accounts must be invested in low-cost, broadly diversified U.S. stock index funds or exchange-traded funds (ETFs) with an expense ratio not exceeding 0.10%. This means a maximum fee of $1 annually per $1,000 invested. At present, it remains unclear which specific funds will be approved for these accounts.
Initially, accounts will be held with a financial institution designated by the Treasury, acting as its agent. Eventually, parents or guardians will have the option to transfer the entire account balance to their preferred brokerage firm via a straightforward trustee-to-trustee rollover process.
Projected Account Growth and Withdrawal Rules
The eventual total value at age 18 will depend on consistent annual contributions and the performance of the invested funds. The government has shared illustrative tables outlining potential growth scenarios under various conditions.
Withdrawals are generally prohibited until the child reaches 18. At that point, the account holder may withdraw funds or maintain investments within the account. Withdrawn amounts are mostly subject to income tax, except for nondeductible contributions such as those made by parents.
If funds are used for qualifying expenses, such as higher education costs or purchasing a first home, withdrawals can be made without penalty. Conversely, if money is extracted before age 59-1/2 for non-approved items, such as emergencies or debt repayment, a 10% penalty applies in addition to income tax on the withdrawal. Although some promoters have suggested the funds could be used to start a business, the current guidance does not clarify whether such use escapes the penalty.
Evaluating the Benefits and Challenges of Trump Accounts
The concept of initiating a financial investment in children’s futures from birth is favorably received across many sectors. Under optimal circumstances—adequate annual family contributions, employer matches, and favorable market returns over an 18-year horizon—Trump Accounts could provide valuable resources to assist youth in managing educational expenses and early adult financial demands.
However, many families may lack the financial capacity to contribute regularly, or at all, limiting the accounts’ utility. Critiques have been raised that these accounts might predominantly benefit households with existing financial means. Madeline Brown, a senior policy associate at the Urban Institute, points out potential limitations for lower-income families once the initial $1,000 pilot ends, noting low participation rates among these groups in other savings plans such as 529s and Roth IRAs. She underscores that a significant portion of families lack sufficient emergency savings, which naturally constrains their ability to save more extensively for their children’s futures.