Trump Accounts for Kids: What Parents Need to Know About the Tax Rules

The One Big Beautiful Bill Act, signed into law in 2025, created a new type of tax-advantaged savings account for children called Trump Accounts — officially known as "Children's Tax-Advantaged Savings Accounts," but widely referred to by the president's name. These accounts are designed to give children a financial head start by allowing money to grow over time before they reach adulthood. Any child under the age of 18 who is a U.S. citizen with a Social Security number is eligible. For children born between 2025 and 2028, there is an added bonus: the federal government will make a one-time $1,000 seed deposit into the account on the child's behalf.

From a tax perspective, Trump Accounts function similarly to a custodial Traditional IRA — meaning contributions and investment earnings grow tax-deferred, with taxes owed only when money is eventually withdrawn. However, there are some important differences. Unlike a Traditional IRA, the child does not need earned income to qualify, and contributions made while the child is under 18 are not tax deductible. Employers can contribute up to $2,500 per year to an employee's child's account, and that amount is excluded from the employee's taxable income. Once the child turns 18, the account transitions to standard Traditional IRA rules: contributions become potentially deductible, but early withdrawals before age 59½ are subject to income tax plus a 10% penalty (with certain exceptions, such as a first home purchase). Parents should also be aware of the annual contribution limit of $5,000 — across all contributors — to avoid excess contribution penalties. The government's $1,000 deposit does not count toward this limit.

Accounts can be opened starting July 4, 2026, through the government's online portal using Form 4547, which can also be filed as part of your annual tax return. Only a parent or legal guardian can open the account on the child's behalf, but once open, grandparents, other family members, and employers can all contribute. Contributions are invested in funds that track U.S. stock markets, and no distributions of any kind are permitted until the child turns 18. If you have a child born in 2025 or later, it is worth acting promptly — the $1,000 government deposit will only be available for children born through 2028, and the account must be established to receive it. As with any tax-advantaged account, the earlier you start, the more time the money has to grow.

This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional about your specific situation.