If you have young kids, you may have started hearing about Trump Accounts. And despite some of the headlines surrounding them, the basic idea is actually pretty simple.
Think of a Trump Account as a starter retirement account for your child.
It is not primarily an education savings account like a 529 plan. Instead, it creates an opportunity to start investing for a child's long-term future, potentially decades before they would normally be able to fund a retirement account themselves.
For many families, that's the most interesting part.
The 30-Second Overview
Here are the basics:
- A Trump Account is a new type of IRA-like account that can be established for a child under age 18 who has a valid Social Security number.
- Children who are U.S. citizens born January 1, 2025 through December 31, 2028 and have a valid Social Security number can qualify for a one-time $1,000 contribution from the U.S. Treasury.
- Parents, grandparents and others can contribute additional money. These contributions are generally made with money on which taxes have already been paid.
- Contributions generally do not require the child to have earned income, which is a major difference from funding a traditional or Roth IRA for a child.
- During childhood, the money generally cannot be withdrawn and must be invested in qualifying low-cost U.S. stock-market index investments.
- Beginning in the year the child turns 18, traditional IRA rules generally apply to the account.
- Annual contributions are capped annually at $5k per year (not including the $1k from the government if applicable)
In other words, this is less of a "college account" and more of a "retirement account that happens to start when you're a kid."
That's how I would think about it.
Why This Is Different From a 529
This distinction is important.
A 529 plan is specifically designed around education. If we're saving money that we expect a child to use for college or other qualified educational expenses, the 529 remains an incredibly useful tool.
A Trump Account serves a different purpose.
The primary opportunity is giving a child an extraordinarily early start on long-term investing and retirement savings.
Historically, parents who wanted to start a Roth IRA for a young child ran into one major problem: the child needs legitimate earned income to contribute to an IRA.
Trump Accounts don't have that requirement during the child's growth period. Parents can begin contributing while the child is still young, even if the child obviously doesn't have a job yet.
That potentially gives the money decades and decades to compound.
Who Gets the $1,000?
The $1,000 Treasury contribution is more limited than eligibility for the accounts themselves.
A child generally qualifies for the government's one-time $1,000 contribution if the child:
- Was born between January 1, 2025 and December 31, 2028
- Is a U.S. citizen
- Has a valid Social Security number
- Has an election made to receive the contribution
That means I was able to set one up for my son Noah who was born in 2025, and we'll plan to do the same for any additional children (TBD!) we may have during the eligibility window.
Importantly, though, children who don't qualify for the $1,000 may still be eligible to have a Trump Account established for them as long as the account is established while they're eligible under the rules.
How Much Can You Put In?
During the child's growth period, parents, family members and employers can generally contribute up to an aggregate $5,000 per year, with that limit scheduled to begin adjusting for inflation after 2027.
The government's $1,000 contribution does not count against that $5,000 limit. Certain government and charitable contributions don't count against it either.
Employers can also establish programs that contribute as much as $2,500 per year toward an employee's or dependent's Trump Account. Those qualifying employer contributions count toward the regular $5,000 annual limit.
And you don't necessarily have to max it out.
This isn't something every parent suddenly needs to put $5,000 per child into every year. Depending on your family's other priorities — emergency savings, retirement, debt, 529 contributions and everything else — even a relatively modest contribution could be a nice way to start building a child's long-term retirement assets.
What Happens to the Money?
While the child is young, the investment choices are intentionally pretty simple.
The money has to be invested in qualifying, low-cost index investments focused primarily on U.S. companies.
More importantly, the child generally can't pull the money out before the year they turn 18.
Beginning January 1 of the year they turn 18, the account generally becomes subject to traditional IRA rules. At that point, money could remain invested for retirement, potentially be converted to a Roth IRA under the applicable tax rules, or eventually be withdrawn.
Withdrawals before age 59½ can generally be subject to income taxes on the taxable portion plus a 10% early-withdrawal penalty, unless an IRA exception applies.
At a very high level, some exceptions to that 10% penalty can include things like:
- Qualified higher-education expenses
- Certain first-time homebuyer expenses
- Disability
- Certain qualifying medical expenses or other IRA exceptions
That doesn't necessarily mean taking the money out is tax-free. It means the additional 10% penalty may not apply.
This is another reason I wouldn't think of a Trump Account as a replacement for a 529. Yes, IRA rules provide an exception from the 10% penalty for qualified higher-education expenses once the child reaches the applicable age. But education isn't what makes this account especially interesting.
The real opportunity is starting retirement savings incredibly early.
One Tax Detail Worth Understanding
There is one slightly nuanced tax issue that parents should understand now because it could become important 20, 30 or 50 years from now.
Not every dollar going into a Trump Account receives the same tax treatment.
If you put $1,000 of your own after-tax money into your child's account, you've already paid income tax on that $1,000. The IRS keeps track of that concept as the account's "basis."
You don't need to remember that word.
Just remember this:
Your own after-tax contributions generally aren't taxed a second time when eventually distributed. The investment growth associated with the account can be taxable under the applicable IRA rules.
On the other hand, the government's $1,000 contribution and qualifying employer contributions don't create this after-tax basis because those amounts weren't previously included in taxable income.
This means an account could eventually contain a mixture of:
Money that's already been taxed + money that hasn't been taxed + decades of investment growth.
The account provider has reporting requirements designed to keep track of this. Still, I would recommend keeping your Trump Account statements and contribution records, particularly if you eventually transfer the account to another financial institution which might result in losing that critical transaction history.
That's not something to lose sleep over today. It's simply a good recordkeeping habit that could save your child a headache decades from now.
So, Should You Fund One?
I wouldn't view Trump Accounts as something every family must maximize.
I'd view them as another tool in the toolbox.
If you're already trying to save for your children's future, a Trump Account gives you something we haven't historically had: a straightforward way to begin funding a retirement-oriented account for a child before they have earned income.
For some families, a 529 and/or a taxable investment account earmarked for a child's education needs may still deserve the next dollar.
For others, retirement savings, paying down debt or simply building more flexibility on your balance sheet may come first.
But if those priorities are already in good shape, putting some money into a Trump Account and giving it 50 or 60 years to compound could be a pretty neat gift to your child.
And if your child qualifies for the government's $1,000 contribution, I see very little reason to leave that money sitting on the table.
How to Set Up a Trump Account
The actual setup process is pretty straightforward and their app is pretty easy to use, although there is a little bit of government-style identity verification along the way.
1. Go to TrumpAccounts.gov and download the app
Start at TrumpAccounts.gov and download the official Trump Accounts app from the Apple App Store or Google Play.
2. Walk through the initial account setup
Open the app and follow the prompts to begin setting up the Trump Account for your child.
You'll want to have your child's basic information handy, including their Social Security number, date of birth and address.
3. Complete Form 4547 if you haven't already
Form 4547 — Trump Account Election(s) is what officially makes the election to establish the account.
If you already completed Form 4547 when filing your taxes or through your IRS online account, you shouldn't need to make the election again.
If you haven't completed it yet, follow the prompts during the setup process to make your Trump Account election. For a child who qualifies for the government's $1,000 contribution, make sure you also elect to receive that contribution.
Be sure you don't accidentally type in your child's Social Security Number incorrectly or you will receive a notice that your child is not eligible and have to redo it. Learned the hard way on that one when setting it up for my son Noah... whoops!
4. Verify your identity
Next comes the slightly awkward government-account part.
You'll need to complete the required identity verification and authentication process. Be prepared to have a government-issued photo ID available and to complete the identity verification steps, which may include taking a selfie or using your phone's camera to verify that you are actually you.
It's a little weird, but it only takes a few minutes.
5. Wait for the election to process
Once you've submitted the election, you'll need to give the system some time to process it before the Trump Account can be fully activated.
You can check the status of your Form 4547 election through your IRS Individual Online Account.
6. Go back in and finish setting up the account
Once your election has been processed, return to your Trump Account and complete the remaining account setup and activation steps.
From there, you can decide whether you simply want to receive the government's $1,000 contribution, if your child qualifies, or whether you also want to begin making contributions of your own. No fund selection needed as they will be automatically invested for you in the S&P500 index. No other investment options at this time.
And that's it!
This material is provided for general educational purposes and should not be considered individualized tax, legal, or investment advice. Trump Account rules and IRS guidance may continue to evolve, so families should review the current rules and their individual circumstances before making contributions. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results. Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing. Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan. Some IRA’s have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Retirement Plans: Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.