Many families aspire to give their children a strong financial start, but understanding and determining the best path forward can be challenging. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced a new option – the Trump Account – an innovative type of individual retirement account (IRA) designed specifically for eligible children under age 18. This article explores how Trump Accounts work, their potential benefits for long-term growth, and strategies for incorporating them into your planning. Whether for a child, grandchild, niece, nephew, or any young person whose future matters to you, understanding Trump Accounts can help you unlock powerful tax-deferred growth opportunities – either by establishing an account (typically as a parent, guardian, adult sibling or grandparent of the beneficiary) or by contributing to an account that already exists.

Trump Accounts encourage early savings by allowing contributions to grow tax-deferred until retirement. Here are some of the important details surrounding these new accounts:

1. Eligibility: The account beneficiary must be a U.S. citizen or resident under age 18 at year-end with a valid Social Security number. A parent or guardian establishes the account using IRS Form 4547 or trumpaccounts.gov.
2. Pilot Program Contribution: For births January 1, 2025 - December 31, 2028, the government provides a one-time $1,000 deposit to the account. These deposits are made only after the account is established but no earlier than July 4, 2026.
3. Contributions: Contributions cannot begin before July 4, 2026. The annual limit is $5,000 per child (adjusted for inflation after 2027) from individuals, employers, and most other sources, with no income phase-out – making accounts accessible regardless of a family’s total income. Qualified general contributions from governmental entities or 501(c)(3) organizations are exempt from this limit. Trump Accounts operate with a separate contribution limit from other IRAs – meaning contributions to a Trump Account do not count against or reduce the standard annual IRA contribution limits. Contributions are made with after-tax dollars (no upfront deduction), but earnings grow tax-deferred. Family members, friends, or employers can contribute. Employers may even establish Trump Account Contribution Programs, allowing matching or direct contributions of up to $2,500 per year (counting toward the $5,000 limit), which could potentially be excluded from an employee’s income.
4. Investment Options: Funds must go into mutual funds or ETFs tracking primarily U.S. company indexes (e.g., S&P 500), promoting broad market exposure while limiting riskier choices for long-term focus.

To illustrate, consider Bob and Cheryl, parents to newborn daughter Emily, born in March 2026. They are eager to build savings for Emily’s future – whether for college, a first home, or retirement. They elect to open a Trump Account for Emily. After the account is established, the federal government deposits the $1,000 pilot program seed contribution which does not count towards the account’s $5,000 annual contribution limit. On July 4, 2026, Bob and Cheryl make the maximum contribution of $5,000 and continue to make the maximum contribution annually until the year Emily turns 18, investing contributions in an S&P 500 index fund. Assuming a conservative 7% average annual return (a return assumption that falls below the S&P 500’s historical return of approximately 10% including dividends), Emily’s Trump Account would grow to over $2.5 million by the time she reaches age 59 ½, when qualified distributions can begin – delivering a substantial tax-advantaged retirement nest egg.

Tax Advantages and Distribution Rules

Trump Accounts provide tax-deferred growth, meaning investment earnings are not taxed until distributed. While the beneficiary is under age 18, distributions are generally prohibited – except in very limited circumstances. On January 1 of the calendar year in which the beneficiary reaches age 18, the account transitions to standard traditional IRA treatment. Distributions are then permitted for any purpose, with the growth portion of any distribution taxed as ordinary income. Additionally, withdrawals prior to age 59 ½ generally will incur a 10% early distribution penalty unless an exception applies.

Potential Planning Opportunity: After the beneficiary reaches age 18, beneficiary may be permitted to convert the account’s assets to a Roth IRA at a low effective tax rate.

Potential Drawbacks and Considerations

Trump Accounts offer strong benefits for retirement savings but include trade-offs. For example, as mentioned above, investment options are limited to mutual funds or ETFs tracking indexes of primarily U.S. companies while the beneficiary is under age 18. This focus promotes broad market exposure and simplicity but may not provide the full diversification or risk management some investors prefer. Additionally, the child is entitled to full access to the account at age 18 – potentially leading to the unintended use of funds. Families should also consider state taxes, as some states may choose not to conform with federal treatment. Finally, as with any new tax vehicle, regulations are evolving – IRS Notice 2025-68 provides initial guidance, but more information, such as how a Trump Account may impact a student’s application for financial aid, is expected.

Of course, Trump Accounts are just one tool among several for saving on behalf of minors. Before investing in a Trump Account, consider these alternatives.

• 529 plans excel for education-focused savings, offering tax-free growth and withdrawals for qualified education expenses. They allow much higher contributions limits, broader investment options, and flexibility to change beneficiaries.
• UTMA/UGMA custodial accounts provide maximum flexibility with no contribution limits (subject to annual gift tax rules), greater investment freedom, and access to funds for any purpose benefiting the child. However, unearned income above certain thresholds is subject to the “kiddie tax,” which results in taxation at the parents’ likely-higher marginal rate rather than the child’s lower rate. Additional drawbacks include possible negative impact on college financial aid and full control transferring to the child at age 18-21 (depending on state), with no tax-deferral benefits.
  
  

In contrast, Trump Accounts prioritize long-term retirement savings with tax-deferred growth, the unique $1,000 federal seed for eligible newborns, and no earned-income requirement for contributions – but they lock funds until age 18, limit annual additions, restrict investments, and tax distributions as ordinary income.

Some families may find the Trump Account to be a strong fit for long-term retirement savings goals. To determine the best approach for your situation, work with your Stifel Financial Advisor to model various scenarios and consider how a Trump Account compares with (or complements) other savings vehicles, such as a 529 plan for educational needs or a UTMA/UGMA custodial account for more flexible use.

Planning Ahead

Trump Accounts represent a forward-thinking addition to the tax code, blending elements of IRAs with child-focused incentives to help you build financial independence for the next generation. You can benefit by starting early, taking advantage of the federal pilot contribution for qualifying newborns, and coordinating these accounts with your existing retirement savings strategies.

Consult with your qualified tax professional and Stifel Financial Advisor to determine whether a Trump Account aligns with your goals and overall financial plan. For more information, visit irs.gov or trumpaccounts.gov.

Stifel does not provide legal or tax advice. You should consult with your legal and tax advisors regarding your particular situation.