By Vikram Ganu, Senior Vice President, Director of Tax, Whittier Trust
The One Big Beautiful Bill (“OBBB”), enacted on July 4, 2025, introduced a new retirement savings option for children called “Trump Accounts.” A Trump Account is, at its core, a tax-deferred IRA for children that does not require them to have earned income. These accounts will allow filers to invest in broad-market, low-cost, U.S. mutual funds or ETFs on behalf of an eligible child.
Elections to establish an initial Trump Account may be made on Form 4547 or by applying online before July 4, 2026, but contributions cannot be made before that date.
Each child may have only one Trump Account at a time, and the annual contribution limit is $5,000, adjusted for inflation after 2027. This limit is independent of the child’s other IRA contribution limits. To be eligible, the child must not have turned 18 by the close of the taxable year in which the election is made.
The government will provide a $1,000 pilot contribution to children born from 2025 to 2028, who are U.S. citizens with a valid Social Security number. There is no income threshold to receive the $1,000. To claim the contribution, filers must expect the child to be their qualifying child (i.e., their dependent) for the year of the election.
Because a child may have only one initial Trump Account, the rules limit who may elect to open it. If no $1,000 pilot contribution is made at the same time, the authorized individual is determined in this order: legal guardian, parent, adult sibling, then grandparent. If multiple people are at the highest available priority level, any one of them may file. If the filer is making the election for the $1,000 pilot contribution, that same individual must also make the initial Trump Account election. Once the first election for the child is processed, no further initial account elections may be processed.
Contributions to Trump Accounts will primarily come from two sources: funds from the filer or funds from the filer’s employer. Employer contributions are limited to $2,500 per employee per year (not per child), adjusted for inflation after 2027, and must be made under a written plan. The total of employer and non-employer contributions cannot exceed the annual contribution limit in effect each year (in 2026, $5,000). Therefore, filers must coordinate with their employer to prevent a Trump Account from being overfunded. Contributions must be made by December 31 of the year to count for that year.
Withdrawals from Trump Accounts are not permitted until the beginning of the year in which the eligible child turns 18, except for rollovers to another Trump Account, rollovers to an ABLE account in the year the child turns 17, distributions of excess contributions, or upon the child’s death. When the child reaches 18, control of the account transfers to the child, and the account is governed by general IRA rules, though it is not identical to an IRA in all respects. Distributions from the account are taxed as ordinary income, and early withdrawals (before age 59½) are subject to a 10% penalty unless an exception applies.
Although Trump Accounts and Section 529 plans both aim to make saving for children more tax-efficient, they differ in several ways. It is important to view them as just one of many tools in a financial planning toolkit.
| Trump Account | 529 Plan | |
| Money is used for | Retirement | Education |
| Number of accounts | 1 account per child | Unlimited |
| Annual contribution limits | $5,000, adjusted for inflation after 2027 | None (though most states set caps on total dollars contributed) |
| Eligible for gift tax annual exclusion? | Potentially (guidance forthcoming) | Yes |
| Can be “super funded” with 5 years’ contributions based on the annual gift exclusion, without using the lifetime gift/estate exclusion | No | Yes |
| Are contributions deductible or eligible for a credit? | No | Yes (for some states) |
| Tax treatment of distributions | In year child turns 18, amounts in excess of filer contributions are subject to income tax, and potentially penalties if withdrawn early | Tax-free for qualified education expenses |
| Can be converted into a Roth IRA | Taxable conversion possible, but only beginning in the year the child turns 18 | Nontaxable conversion possible, subject to lifetime caps and holding period requirements |
| Who owns the account in the year the child turns 18 | The child | The account owner |
Planning considerations and next steps:
The Department of the Treasury announced that The Bank of New York Mellon Corporation will serve as the financial agent for the initial program and will help develop the white-label platform for the accounts, with Robinhood serving as the brokerage and initial trustee. Once the accounts are open, it is anticipated that they can be rolled over via trustee-to-trustee transfer to an account owner’s custodian of choice.
In advance of the rollout date, filers should take into consideration the following:
- Determine their eligibility to open a Trump Account for an eligible child, taking into account the hierarchy of authorized individuals.
- Consider whether a Trump Account makes sense instead of or in addition to other investment options. If so, the process can be started by making the requisite elections when filing an income tax return or online.
- Check whether an employer intends to offer employer-sponsored contributions so contributions can be coordinated to avoid overfunding an account.
- Consider delaying contributions if there is a concern about the applicability of gift tax. Additional regulations or guidance might provide clarity.
- For filers with eligible children born in 2025 to 2028, make the elections and open the account to receive the $1,000, even if the account doesn’t make sense long-term.
The Trump Account is best viewed as a long-term retirement savings tool for children, with distinct features and limitations compared with 529 plans and other savings options. For filers who anticipate their children needing funds for education, the 529 plan remains the superior option to a Trump Account. A careful review of each account’s eligibility requirements, contribution limits, and tax implications will help filers prepare for the July 4 go-live date.
Do you have other questions about tax-efficient intergenerational wealth transfer? Speak with a Whittier advisor today to see how we can best serve you.