Most Americans now experience taxes as one of the largest long-term drags on wealth. Between taxes on interest, dividends, and capital gains, many investment dollars are taxed repeatedly over a lifetime.
Trump Accounts are a new federal savings vehicle created in the most recent tax bill to help families invest for their children’s futures in a tax-deferred account. These accounts are designed to be long-term focused, child-focused, and provide an opportunity for families to establish and build meaningful tax-deferred savings for their children.
More guidance is expected from the Treasury and the IRS, but this commentary serves as an overview of what we know today about this potentially significant planning opportunity.
What is a Trump Account?
- A Trump Account is a tax‑advantaged investment account for eligible children under age 18, funded with after‑tax contributions and invested in broadly diversified U.S. stock index funds.
- The federal government has offered a one‑time $1,000 “seed” contribution for children born in specific years (currently 2025–2028) once an account is opened.
- Each child can have only one Trump Account, which is opened through an IRS election process and then held at an approved financial institution.
Who is eligible?
- Generally, U.S. citizen children under age 18 with a Social Security number are eligible once a parent, guardian, or other priority caregiver elects to open the account.
- The recent bill and subsequent IRS guidance outline an election process (via a new IRS form or online portal) that families will use beginning in 2026 to claim and activate accounts.
How contributions work
- Family, friends, and others can contribute up to a total of $5,000 per year per child. This annual limit is anticipated to be indexed for inflation in later years.
- Employers may contribute up to $2,500 per year per eligible child as a tax‑free employee benefit, but these employer contributions generally count toward the same $5,000 annual cap.
- Certain government entities and charities can add additional contributions for groups of children, which do not count as taxable income to the child.
Tax benefits and investment rules
- Most family contributions are made with after‑tax dollars, but investment growth inside the account is tax‑deferred, similar to traditional retirement accounts.
- Funds must initially be invested only in approved, low‑cost U.S. stock index mutual funds or ETFs (for example, funds tracking the S&P 500) that meet strict fee and diversification requirements.
- When money is eventually withdrawn, the child’s own after‑tax contributions are returned tax‑free, while earnings and certain third‑party contributions are taxable under rules similar to IRA distributions.
Accessing the money
- No withdrawals are allowed while the child is under age 18, except in limited cases such as rollovers or the child’s death.
- Starting in the year the child turns 18, the Trump Account converts to an IRA‑style account; from that point forward, standard retirement‑account rules generally apply, including potential taxes and early‑withdrawal penalties on taxable amounts before age 59½ (subject to certain exceptions).
- While subject to traditional IRA rules, there may be opportunities to make withdrawals for qualified expenses such as education and a first home purchase.
How this can fit into current plans
- Trump Accounts can complement existing strategies like 529 college savings plans, custodial accounts, and Roth IRAs by adding another dedicated, tax‑advantaged bucket for children.
- These accounts are unique in that they offer the tax-deferral benefits of an IRA without the earned-income requirement (earned wages) to make contributions before the child turns 18. This overcomes a hurdle many families have faced when saving for their children.
- Because rules and operational details are still being refined by Treasury and the IRS, any Trump Account strategy should be coordinated with your overall financial, tax, and estate plan and may evolve as additional guidance is released.
Disclosure:
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Facts presented have been obtained from sources believed to be reliable. Gryphon, however, cannot guarantee the accuracy or completeness of such information. Gryphon does not provide tax, accounting or legal advice, and nothing contained in these materials should be taken as tax, accounting or legal advice. Individuals should seek such advice based on their own particular circumstances from a qualified tax, accounting or legal advisor.