Trump Accounts: Long-term investing for the next generation

4–5 minute read

A Trump Account is a new type of traditional individual retirement account (IRA) for children — a tax-advantaged investment account — with special rules that apply before the child turns 18. The account is designed to help eligible children benefit from long-term investing, starting early in life.

A Trump Account can receive contributions from family, friends, employers, and others. And eligible U.S. citizens born in 2025 through 2028 qualify for an initial $1,000 contribution from the U.S. Department of the Treasury.

A Trump Account legally belongs to the child for whom it is established. A parent, guardian, or other authorized individual acts as the Responsible Party and manages the account on the child’s behalf until they turn 18.

At age 18, the child (who is the beneficiary of the account) will take control of the account and can choose to use the funds or continue investing them, subject to the rules that generally apply to traditional IRAs.

Trump Accounts have an annual contribution limit of $5,000 through the calendar year the child turns 17. This limit applies collectively to contributions from parents, family, friends, and employers.

Employers may contribute up to $2,500 per employee each year, subject to applicable statutory requirements. Employer contributions are excluded from the employee’s taxable income, providing another tax-advantaged contribution into the child’s account. Employers may also allow employees to make pre-tax contributions to a dependent’s Trump Account through an elective salary reduction, that would be part of the $2,500 per employee limit. It's important to note, employer-based contributions count toward the account’s $5,000 annual contribution limit.

Pilot program contributions from the U.S. Treasury for eligible children, along with any charitable contributions and state and local government contributions, do not count toward the $5,000 annual limit. Built-in account safeguards are designed to help prevent contributions that exceed applicable annual limits.

Mabel qualifies for the $1,000 pilot contribution:

• In Mabel’s first year, her mother opens a Trump Account for her. The account receives the $1,000 pilot contribution, and her mother also contributes another $2,000.
• Later that year, Mabel’s aunt contributes $500, and Mabel’s mother’s employer contributes $2,500.

In total, $6,000 is contributed to Mabel’s account in her first year. However, only $5,000 counts toward the yearly contribution limit because the $1,000 pilot contribution does not count against the limit.

Before the child turns 18, funds in a Trump Account generally are not available for withdrawal. Contributions and investment earnings remain invested in the account and continue growing over time through reinvestment, also known as compounding.

Trump Accounts are designed to encourage long-term investing beginning early in a child’s life.

• For those eligible, pilot contributions are intended to support long-term investment growth from an early age.
• Low-cost investment options and tax-deferred treatment may help account balances grow over time.
• Withdrawal restrictions are designed to keep funds invested until the child reaches adulthood.

When the child turns 18, most of the special rules applicable to Trump Accounts no longer apply. The account transitions to a traditional IRA controlled directly by the child who is the beneficiary of the account.

At that point, the child can:

• Continue making contributions to the account under traditional IRA rules;
• Choose to withdraw funds for eligible expenses, like higher education or a first home, which are taxed at ordinary income tax rates with no additional distribution tax, or
• Leave the funds invested for future long-term growth (no need to make additional contributions).

Earnings in a Trump Account generally grow tax-deferred while invested in the account. Taxes generally are due only when funds are withdrawn.

Not all dollars are treated the same at withdrawal, though. The portion of each withdrawal that consists of contributions made by individuals — parents or family members — is considered “basis” and is not subject to taxes. The portion consisting of employer contributions, charitable or state and local government contributions, and account earnings is subject to ordinary income tax.

Withdrawals that do not qualify for an eligible exception are also subject to an additional 10% early distribution tax until the account owner reaches age 59 and a half.

Remember: Distributions are restricted until the calendar year the beneficiary reaches 18.

An example:

George’s family contributed $5,000 to his Trump Account over time. By age 18, the account value has grown to $20,000 through investment earnings.

If George decides to use the full $20,000 for a qualified expense, such as paying for his education or buying his first home, 75% of the withdrawal, that is, the portion of the withdrawal other than the original contributions (the $5,000), will be subject to ordinary income tax under applicable rules. No early distribution tax would apply.

Similarly, if only a partial withdrawal is made, ordinary income tax would be imposed on the proportional part of the amount withdrawn that is not attributable to the family’s contributions. If George decides, however, to withdraw the full $20,000 for a non-qualified expense, ordinary income tax would apply in the same way described above, plus the taxable amount would be also subject to an early distribution tax, currently 10%.

Trump Accounts are designed specifically to help children begin building long-term financial security from an early age. While other savings and investment accounts for minors exist, Trump Accounts have several unique features:

• A Trump Account is the only type of account that can receive pilot contributions from the U.S. Treasury.
• A Trump Account is the only type of account that can receive a contribution to a qualified class funded by a nonprofit or government entity.
• A Trump Account is the only type of account through which a child can receive pre-tax contributions from a parent’s employer.
• Earnings are not taxed while they remain in a Trump Account. That is also true for earnings that remain in a 529 account, but not for earnings in a custodial account (UTMA/UGMA).
• Funds in a Trump Account generally must be invested in an index of primarily U.S. equities. Funds in other accounts for minors generally do not have investment restrictions.

For families weighing their options: The right account depends on the family’s goals, tax situation, and timeline. In many cases, accounts like these can work alongside a Trump Account rather than replace it.

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Disclosures:

The chart in the image above assumes bi-weekly contributions of $50 over a 13-year timeline with a 7% hypothetical annual rate of return. This hypothetical compound growth example is for illustrative purposes only. It’s not a guarantee of future results and does not account for real-world factors like inflation, taxes, fees, or market changes.

This material is provided for general educational purposes only and does not constitute tax, legal, or investment advice. Individuals should consult a qualified professional regarding their specific circumstances.

All investing involves risk, including the possible loss of principal. Account returns are not guaranteed and the examples provided are for illustrative purposes only.

Brokerage and clearing services are provided through Robinhood Financial, LLC and Robinhood Securities, LLC, each a registered broker-dealer and member of SIPC, respectively.