TheMoneyGeek Unplugged

Beginning in 2026, a new type of tax-advantaged account for children, informally called “Trump accounts”, will become available. These are a special version of traditional IRAs designed to give kids an early head start on long-term retirement investing, with seed money from the federal government and, in some cases, additional funding from private donors.

Important: Rules are new and still evolving. Final forms, portals, and implementation details may change before these accounts launch. This overview is for general information only and is not personal tax or investment advice.

What is a Trump Account?

• A Trump account is essentially a traditional IRA for a child under age 18 who has a Social Security number.
• The accounts were created under the federal “One Big Beautiful Bill” and will take effect for tax years beginning in 2026.
• Although they follow many of the same tax rules as traditional IRAs, there are essential differences in who can contribute, how the accounts are funded, and how distributions work.

Who is Eligible and How Do You Opt In?

• Each eligible child must be opted in by a parent or guardian; accounts are not automatically created.
• The U.S. Treasury will set up the basic account framework for each eligible child, but parents must actively open/activate the account.
• To opt in, parents will either:
  • File new Form 4547, or
  • Enroll through a federal online portal once it is available.
• As of now, only a draft Form 4547 has been released, and the online portal is not expected to be available until mid‑2026.

Government and Private “Seed” Contributions

Trump accounts are unusual because they can receive funding from multiple sources, including the federal government and specific qualifying organizations.

$1,000 federal contribution:

• The federal government will contribute $1,000 to each Trump account opened for children born after 2024 and before 2029.
• Parents must opt in (via Form 4547 or the portal) to receive this contribution.

• Additional $250 for lower‑income ZIP codes:
  • Michael and Susan Dell have pledged $6.25 billion to fund additional contributions for 25 million children ages 0-10 who live in ZIP codes with a median income below $150,000.
  • Eligible children in those areas will receive an additional $250 in their Trump accounts.
• These government and qualifying organizational contributions:
  • Are not taxable to the child.
  • Don’t create a cost basis in the account (they are treated more like pre‑tax contributions inside a traditional IRA for tax purposes).

How Much Can Be Contributed Each Year?

In addition to the federal and qualifying “general” contributions, families and employers can add their own money:

• Up to $5,000 per year can be contributed to a child’s Trump account until the child turns 18.
  • This annual limit applies to all contributions combined (parents, relatives, employers, etc.).
  • The $5,000 limit will be indexed for inflation each year after 2027.
• Of that $5,000 annual limit, up to $2,500 may be contributed tax‑free by an employer of either the parent or the child (if the child has a job).
• Contributions can be made by:
  • Parents or guardians.
  • Grandparents or other relatives.
  • Other individuals who wish to help fund the account.
• Key tax point:
  • No one gets an income tax deduction for contributing to a Trump account.
  • Qualified general contributions by governments or 501(c)(3)s, employer contributions, and the federal $1,000 contribution do not create a cost basis in the account.
• Timing restriction: Contributions cannot begin before July 4, 2026.

Investment Rules and Distribution Basics

These accounts are intended to be long‑term, stock‑based retirement-savings vehicles for children.

Investment options (before age 18)

• Until the child turns 18, Trump account funds may be invested only in:
  • Certain stock mutual funds, or
  • Exchange‑traded funds (ETFs) that track an index of primarily U.S. companies (for example, an S&P 500 index fund).
• The goal is to keep investment choices simple, diversified, and aligned with long‑term growth.

Withdrawals and taxes

• Before age 18:
  • Distributions are generally not allowed while the beneficiary is under 18, with limited exceptions to be clarified in regulations.
• Starting at age 18:
  • Once the beneficiary reaches 18, distributions are taxed similarly to a traditional IRA:
    • Withdrawals that represent cost basis (after‑tax contributions) are generally not taxable.
    • Withdrawals of earnings (growth, income, and pre‑tax contributions) are taxable as ordinary income in the year withdrawn.
  • Before age 59½, taxable portions of distributions may also be subject to a 10% early distribution penalty, unless an exception applies (e.g., certain education expenses, first‑time home purchase, or other qualifying events under IRA rules).

Rollovers

• A Trump account may be rolled over, in or after the year the beneficiary turns 18, to:
  • A traditional IRA for the same beneficiary, or
  • Certain other qualifying retirement accounts (subject to future guidance).
• This allows the account to transition into the standard retirement system once the child is an adult.

Planning Considerations for Families

For many families, especially those who do not currently max out other tax‑advantaged plans, Trump accounts may offer:

• A federally funded start for a child’s retirement savings.
• A structured way for parents, grandparents, and employers to add to long‑term savings.
• Investment in low‑cost, diversified stock index funds with decades to grow.

At the same time, because:

• Contributions are not deductible,
• Investment choices are restricted before age 18, and
• Rules around basis, taxation, and penalties mirror traditional IRA rules,

it will be essential to coordinate any Trump account funding with your broader retirement and education planning, as well as with Roth IRAs, 529 plans, and regular taxable accounts.

Kids’ IRA or UTMA/UGMA Account?

Some leading financial planners have noted that Trump accounts may not always be the best way to save for children.

One key critique is that while these accounts offer tax deferral, they do not provide tax‑free growth as a Roth IRA does. Instead, contributions are after‑tax, and much of the growth is eventually taxed as ordinary income when withdrawn in adulthood, similar to a non‑deductible traditional IRA.

By contrast, a simple taxable custodial account (UGMA/UTMA) can often take advantage of the kiddie tax and favorable long‑term capital gains rates, allowing families to realize gains periodically at low or even 0% tax rates and to step up basis over time. This can leave the child with more after‑tax wealth than a Trump account, even if the account values look similar on paper.​

Advisors also note that flexibility favors traditional custodial accounts.

UGMA/UTMA assets can be used for a wide range of goals once the child reaches majority: education, starting a business, a first home, or other needs, without early‑withdrawal penalties.

Trump accounts, on the other hand, are subject to retirement‑style rules: access is constrained, withdrawals before age 59½ can trigger penalties, and distributions are generally taxed as ordinary income.

Taken together, the ordinary‑income taxation, lack of a true tax‑free “Roth‑like” benefit, and tighter withdrawal rules are why some experts still prefer straightforward taxable custodial accounts as the primary savings vehicle for many families, using Trump accounts (if at all) as a supplemental tool rather than the core strategy.​

Get in touch with us if you’d like help evaluating whether a Trump account makes sense for your family and how it fits with your existing financial planning. The next step is to review your situation and your current saving priorities.

Sam H. Fawaz CFP®, CPA, PFS is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other retirement, college, tax, or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We begin with a thorough assessment of your unique personal situation. There is no rush and no cookie-cutter approach. Each client’s financial plan and investment objectives are unique.