What are “Trump Accounts” and how do they work?
This question was answered by Taylor, CPAI, Deduction’s AI tax accountant, and Deduction’s licensed CPAs.
Trump Accounts are a new type of tax‑advantaged individual retirement account for children under age 18, created by the One Big Beautiful Bill Act (OBBBA) and codified in new Internal Revenue Code section 530A. During a special “growth period” while the child is a minor, contributions can be made for the child even if the child has no earned income, which distinguishes these accounts from traditional and Roth IRAs.
Basic Structure and Purpose
A Trump Account is a modified traditional IRA designed specifically for minors. The accounts are intended to give children a head start on retirement savings by allowing contributions on their behalf, notably without requiring the child to have earned income, which distinguishes them from traditional and Roth IRAs.
The accounts operate under special rules during a designated "Growth Period," which begins when the account is established and ends on December 31 of the calendar year prior to the year in which the account beneficiary turns 18. After the Growth Period, the account converts to a standard traditional IRA and becomes subject to regular IRA rules under IRC Section 408.
Eligibility Requirements
To open a Trump Account, the beneficiary must meet the following requirements:
- Be under age 18 before the end of the calendar year in which the account is established
- Be a U.S. citizen (for the pilot program contribution)
- Have a valid Social Security number
An election to establish the account is generally made by a parent or legal guardian (referred to as the "responsible party") by filing IRS Form 4547 or through the website trumpaccounts.gov.
The $1,000 Pilot Program Contribution
A key feature of Trump Accounts is the federal government’s one‑time $1,000 pilot program contribution under IRC Section 6434. This contribution is available to:
- U.S. citizens
- Born on or after January 1, 2025, through December 31, 2028
- For whom a proper election is made by a parent or guardian
The election must be made by an individual who anticipates that the eligible child will be their "qualifying child" (as defined in IRC Section 152(c)) for the tax year in which the election is made. The $1,000 pilot program contribution does not count toward the annual contribution limit.
Contribution Rules
Trump Accounts have a multi-layered contribution structure:
Annual Contribution Limit: The aggregate limit for contributions (other than exempt contributions) is $5,000 per year for 2026 and 2027. This limit will be indexed for inflation starting after 2027.
Who Can Contribute: Almost anyone can contribute to a child's Trump Account, including parents, grandparents, other family members, friends, and employers. Unlike traditional IRAs, the beneficiary does not need earned income to receive contributions.
Types of Contributions:
- Pilot Program Contributions: The $1,000 federal government contribution for eligible children born 2025-2028. This is an exempt contribution not subject to the $5,000 limit.
- Qualified General Contributions: Contributions from state or local governments and 501(c)(3) charitable organizations made to a "qualified class" of beneficiaries. These contributions are also exempt from the $5,000 annual limit but must be distributed to one of three qualified classes: (a) all beneficiaries, (b) beneficiaries living in specified states or geographic areas, or (c) beneficiaries born in a certain year.
- Section 128 Employer Contributions: Employers may contribute up to $2,500 per year to the Trump Account of an employee or the employee's dependent. This amount is excluded from the employee's gross income (similar to other fringe benefits) and counts toward the overall $5,000 annual limit. The $2,500 limit is per employee, not per dependent.
- Individual Contributions: Contributions from parents, relatives, and others count toward the $5,000 aggregate annual limit.
- Qualified Rollover Contributions: Trustee-to-trustee transfers from one Trump Account to another for the same beneficiary are permitted and do not count toward the annual limit.
Important: No contributions of any kind may be made before July 4, 2026.
Investment Restrictions
During the Growth Period, Trump Accounts have strict investment limitations as described in IRS guidance and forthcoming regulations. Funds must be invested in:
- Mutual funds or exchange-traded funds (ETFs) that track the S&P 500 or another broad index of primarily American equities
- Low-cost, diversified U.S. equity index funds
Sources:
The information provided does not, and is not intended to, constitute legal advice.
Have a question about your taxes?
