Understanding the New Trump Accounts

By Laurie Haelen

With the enactment of the One Big Beautiful Bill Act in July 2025, Congress introduced a new type of tax-advantaged savings vehicle for minors known as Trump Accounts.

While 529 plans are primarily designed to help families save for education, Trump Accounts are intended to encourage long-term savings that may ultimately support a child’s future retirement security. Below is an overview of the key features families may want to understand.

Trump Accounts are custodial savings and investment accounts that may be established for U.S. children under age 18. Contributions are made with after-tax dollars, and investments grow tax deferred until withdrawn. In general, withdrawals are not permitted until the year the child reaches age 18.

Beginning in July 2026, Trump Accounts may be established for children who are U.S. citizens, have a valid Social Security number and are under age 18. The law also creates a pilot program for eligible children born between Jan. 1, 2025, and Dec. 31, 2028. These qualified account holders may receive a one-time federal contribution of $1,000. The Department of the Treasury may automatically enroll eligible children in the program. Children born outside the 2025–2028 window may still qualify for Trump Accounts if they are under age 18, but they will not receive the $1,000 seed contribution. There are no income limits or restrictions for Trump Accounts.

Parents, relatives and others may contribute up to $5,000 per child each year. This annual limit will be adjusted for inflation in future years. Individual contributions are made with after-tax dollars.

Employers may also establish plans that allow contributions to employees’ Trump Accounts or to Trump Accounts for employees’ dependents. Employers may contribute up to $2,500 annually for each employee. Employer contributions made under such a plan are not included in the employee’s gross income at the time of contribution.

Charities and governmental entities may also make contributions under certain conditions. These contributions do not count toward the $5,000 annual individual contribution limit. The $1,000 federal seed contribution is also excluded from that annual limit.

The tax treatment depends on the source of the contribution. Contributions from individuals are made with after-tax dollars, so they are not deductible. However, those contributed amounts may generally be withdrawn tax-free. Employer, charitable, and government contributions, including the $1,000 seed contribution, are not treated as income when contributed but are generally included in income when distributed.

Earnings on all contributions grow tax deferred. Once the account holder reaches age 18 and distributions are permitted, the account may include both non taxable amounts, such as after-tax contributions from parents or relatives, and taxable amounts, such as earnings and certain employer, charitable, or government contributions. The same general rules that apply to IRAs apply to Trump accounts, including the following:

• If the account includes non taxable parent or individual contributions, each distribution is generally treated as including a proportionate share of taxable and non taxable amounts.

• Taxable distributions are generally taxed at ordinary income rates. A 10% additional penalty tax may apply if a taxable distribution is made before age 59½, unless an exception applies.

• Exceptions to the 10% penalty may include withdrawals for qualified higher education expenses and up to $10,000 for a first-time home purchase.

Trump account funds are generally invested in a mutual fund or exchange-traded fund that tracks a qualified index, such as one tied to the S&P 500. Account holders are not able to choose among multiple funds or adjust the investment mix while the special rules apply. The investment allocation is fixed and limited to U.S. equities. Eligible funds must have annual fees of no more than 0.1%.

Trump Accounts may become a helpful long-term savings tool for some families, especially those eligible for the one-time federal seed contribution or potential employer contributions. However, they are not a one-size-fits-all solution.

Families should consider how these accounts compare with other savings options, such as 529 plans for education expenses or other custodial accounts for more flexible goals.

Because additional IRS guidance is expected, families should consult with their financial and tax advisers before making decisions or contributions. Taking time to understand the rules now can help families make thoughtful choices that support a child’s future financial well-being.

Laurie Haelen, AIF (accredited investment fiduciary), is senior vice president, manager of investment and financial planning solutions, CNB Wealth Management, Canandaigua National Bank & Trust Company. She can be reached at 585-419-0670, ext. 41970 or by email at lhaelen@cnbank.com.