Takeaways
- Through Trump Accounts, the federal government will provide a one-time seed contribution of $1,000 for eligible American children born between January 2025 through December 2028.
- The accounts are tax-deferred, and families can contribute up to $5,000 per year per child.
Tucked into the One Big Beautiful Bill Act (OBBBA) enacted in July 2025 is a new savings program designed to give American children a financial head start. For eligible children, the federal government will make a one-time $1,000 seed contribution to a new investment account that, if paired with additional contributions and left to compound over time, could grow into a substantial nest egg by the time a child reaches adulthood.
That’s the promise behind so-called “Trump Accounts,” which will track a broad U.S. stock index, allow for additional private contributions of up to $5,000 per year, and “afford a generation of children the chance to experience the miracle of compounded growth and set them on a course for prosperity from the very beginning,” according to a White House press release.
Also known as Section 530A accounts, Trump Accounts function as a hybrid of familiar savings tools, combining features of a 529 plan and a traditional individual retirement account (IRA). Funds grow on a tax-deferred basis and, once the child reaches adulthood, may be accessed subject to IRA-style tax rules and penalty exceptions for certain purposes, such as higher education or a first home purchase.
Borrowing some of the branding and rhetoric associated with “baby bonds,” Trump Accounts offer another way for families to jump-start savings for the next generation. While opening an account to receive the government’s initial seed money may be a straightforward decision for eligible children, whether these accounts are worth maximizing — or funding at the expense of other tax-favored options — is far more nuanced and highly dependent on a family’s broader financial and estate planning picture.
Where the Idea for Trump Accounts Came From
The specific proposal that became “Trump Accounts” was developed and championed by Texas Sen. Ted Cruz, who worked to incorporate it into the OBBBA. Cruz framed the accounts as a way to expand participation in capital markets by giving more Americans exposure to investing early in life.
Despite the capitalist bent of these accounts, however, the concept itself is deeply rooted in progressive ideology and the racial justice movement. They stem from the idea of “baby bonds” that were created and popularized by left-leaning economists Darrick Hamilton and William Darity Jr., who argued that the wealth disparity between Black and white Americans stems not from savings habits but from inherent differences in capital endowment and generational wealth.
The original version of baby bonds, championed by Sen. Cory Booker in 2019, proposed to close the racial wealth gap using the bonds as a form of wealth redistribution, with the government giving more money to poor children and little or nothing to wealthy children.
In 2021, Silicon Valley investor Brad Gerstner founded the nonprofit Invest America to advocate for a government-seeded investment account for every newborn. Driven by the belief that the wealth gap is caused by a lack of asset ownership rather than just income, Gerstner pitched a bipartisan “Ownership Society” model. His plan — emphasizing low-fee S&P 500 access and the “miracle of compounding” — provided the direct architectural blueprint for the Trump Accounts recently adopted in the OBBBA.
Trump Accounts serve as an effective hybrid of the baby bond and ownership society models. Pairing a modest federal seed contribution with market-based growth and optional family contributions over time, they remove the heavy means-testing imagined by Hamilton and Darity’s proposal and emphasize the stock market and compounding interest that Gerstner advocates.
Sen. Cruz said that Trump Accounts would not exist without Gerstner’s vision, but the logic behind the federal seed deposit — and the expansion of these funds due to a $6.25 billion gift from the Dell family that will “give millions of low- and middle-income children an even stronger shot at achieving the American Dream” — borrows strongly from a classic baby bond framework.
How Trump Accounts Work
The real question for families is how a Trump Account actually works in practice. Although the idea behind the accounts is straightforward, their legal and tax mechanics introduce complexity that families should understand before treating them as a go-to savings option.
Here’s what families should know about opening and contributing to Trump Accounts.
Who Is Eligible
A Trump Account can be established for:
- Any child with a valid Social Security number
- Under age 18 in the year the account is opened
- U.S. citizenship is required to qualify for the government seed contribution
Under a pilot program, children born between January 1, 2025, and December 31, 2028, are eligible for a one-time $1,000 federal seed deposit. The seed money is only deposited if an account is properly elected.
When Accounts Become Available
- Trump Accounts are expected to roll out in 2026
- Family contributions may begin in July 2026
- The Treasury Department oversees the program
Accounts are administered by banks or other financial institutions acting as the Treasury’s designated agents.
How an Account Is Opened
Families can open a Trump Account in one of two ways:
- By filing a new IRS election form (Form 4547) with a federal tax return
- Through an online Treasury portal expected to launch in mid-2026
Additional steps include an identity authentication process, formal activation of the account after election, and initial custody and holding of the account by the Treasury’s designated financial agent.
How the Government Seed Money Works
The federal government contributes $1,000 one time for eligible children. The contribution:
- Does not count as income
- Grows tax-deferred
- Is treated as taxable upon withdrawal
The seed deposit also cannot be withdrawn before adulthood.
Who Can Contribute (and How Much)
In addition to the government seed money:
- Parents, grandparents, relatives, and friends may contribute
- Annual family contributions are capped at $5,000 per child
- The cap is indexed for inflation
- Contributions are made with after-tax dollars
Other potential contributors include employers, who may contribute up to $2,500 per year for an employee or dependent, as well as charitable organizations, provided contributions are made on an equal basis to eligible groups of children.
Some state governments are exploring ways to supplement Trump Accounts, such as providing additional deposits at birth or tying contributions to financial literacy programs, but these efforts are optional, uneven, and still evolving.
Investment Restrictions
Trump Accounts are subject to strict investment rules:
- Funds must be invested in low-cost mutual funds or exchange-traded funds (ETFs)
- Investments must track broad U.S. equity indexes
- Sector-specific or industry-focused funds are prohibited
- Expense ratios are capped at 0.1 percent
These restrictions are designed to minimize fees, limit speculation, and emphasize long-term, passive growth.
When and How Money Can Be Accessed
- No withdrawals are permitted before the year the child turns 18
- On January 1 of the year the child turns 18, the account beneficiary gains full control
- Funds may be withdrawn for any purpose after that point
Tax treatment depends on who contributed the money, whether the withdrawal qualifies for an exception, and the age of the beneficiary at withdrawal.
Key Tax Considerations
- Investment earnings grow tax-deferred
- Withdrawals generally trigger ordinary income tax
- A 10 percent penalty may apply unless an exception applies
Exceptions include higher education and limited first-home purchases. After-tax contributions cannot be withdrawn separately, and each distribution includes a proportionate share of taxable and nontaxable funds.
What Happens If the Child Doesn’t Reach Adulthood
If the child dies before age 18:
- The account ceases to be treated as an IRA
- The full value becomes taxable to the estate or inheritor
Standard inherited IRA rules apply if the child dies after age 18.
Comparing Trump Accounts to Other Savings Options
Trump Accounts, and the generous contribution from the Dell family, have been praised by both lawmakers and entrepreneurs.
But some argue the accounts are unusually complicated, favor families that have enough money to substantially contribute to them after maxing out other options, and aren’t as flexible and tax-efficient as a 529 plan, a Roth IRA for working teens, or even a taxable brokerage account.
The message that Trump Accounts will make “every American a shareholder” and “restore the American dream for the next generation” is timely, though. Many young Americans still covet the American Dream but say that it’s now out of reach, particularly those with lower socioeconomic status.
Whether they make sense financially, however, and how much to use them, depends on how they stack up against other, more familiar savings tools.
Trump Accounts vs. 529 College Savings Plans
Best for: Families primarily saving for education
- 529 plans offer tax-free withdrawals for qualified education expenses, not just penalty exceptions.
- Funds can be used before age 18, with the account owner retaining control.
- Investment options are broader, and state tax deductions may apply.
- Trump Accounts treat withdrawals as taxable income, even when penalties don’t apply.
Bottom line: For families focused on college costs, 529 plans are often more flexible and tax-efficient.
Trump Accounts vs. Custodial Accounts (UTMA/UGMA)
Best for: General-purpose savings with flexibility
- Custodial accounts allow broad investment choices, including individual stocks.
- Funds can be used for the child’s benefit before adulthood.
- Earnings are typically taxed at capital gains rates, not ordinary income.
- Like Trump Accounts, control automatically transfers to the child at adulthood.
Bottom line: Custodial accounts can be simpler and more flexible, though they carry the same age-of-control risk.
Trump Accounts vs. Roth IRAs for Working Teens
Best for: Children with earned income
- Roth IRAs allow tax-free growth and withdrawals in retirement.
- Contributions (but not earnings) can be withdrawn at any time without tax or penalty.
- Requires earned income, which limits eligibility for younger children.
- Trump Accounts do not require earned income but have more complex tax rules.
Bottom line: Once a child has earned income, a Roth IRA often offers cleaner long-term tax advantages.
Trump Accounts vs. Taxable Brokerage Accounts
Best for: Families prioritizing flexibility and simplicity
- No contribution limits or withdrawal restrictions.
- Capital gains tax treatment may be more favorable than ordinary income.
- No forced age-based transfer rules.
- No government seed money or tax deferral.
Bottom line: For some families, a simple brokerage account can outperform Trump Accounts on flexibility alone.
Where Trump Accounts May Fit Best
Trump Accounts combine rigid rules, mixed tax treatment, and an automatic transfer of control at age 18. Once money goes in, it can be difficult to adjust course — and choices made early may affect how other savings strategies work together over time.
For many families, the key question isn’t whether Trump Accounts are “good” or “bad,” but how they fit — if at all — within a broader savings and estate planning strategy that balances flexibility, tax efficiency, and control.
They may make the most sense for families that want to capture the $1,000 government seed contribution, high-income households that have already maxed out other tax-favored options, and parents focused on very long-term, retirement-style growth, rather than near-term goals. Their actual fit in a family’s planning mix is best evaluated with a professional.
For more information please call Ergood Law, LLC on (856)266-9525.
