Trump Accounts: What Parents and Business Owners Should Know

Trump Accounts are new tax-advantaged investment accounts created for children under Internal Revenue Code Section 530A.

The accounts are designed to help children begin investing at an early age. Money contributed to the account can grow over many years and may eventually help pay for education, a first home, retirement, or business formation.

Although Trump Accounts are treated as a type of traditional individual retirement account, special rules apply while the child is under age 18.

A Trump Account can generally be opened for a child who:

• Has not reached age 18 by the end of the year in which the election is made;
• Has a valid Social Security number; and
• Does not already have a Trump Account election on file.

A parent, legal guardian, or another authorized individual may make the election to open the account.

The federal government will make a one-time contribution of $1,000 for an eligible child who:

• Is a U.S. citizen;
• Has a valid Social Security number;
• Was born between January 1, 2025, and December 31, 2028; and
• Has a valid election filed for the contribution.

The $1,000 is deposited directly into the child's Trump Account. An account is not opened automatically merely because the child meets the age and citizenship requirements. An authorized individual must make the election.

The election is made using Form 4547, Trump Account Election(s).

Parents and other authorized individuals can currently submit the election through an IRS individual online account. Form 4547 may also be filed with an eligible individual income tax return or separately according to the form instructions.

After the election is processed, the responsible individual receives instructions for activating and managing the account through the official Trump Accounts platform.

Contributions may generally be made by:

• Parents;
• Grandparents;
• Other family members;
• Friends;
• Employers; and
• Certain governmental and charitable organizations.

Regular contributions could not begin before July 4, 2026. For 2026 and 2027, family, individual, and employer contributions are generally subject to a combined annual limit of $5,000 per child's account. The limit is scheduled to be adjusted for inflation after 2027.

The $1,000 federal pilot contribution does not count against the $5,000 annual limit. Certain qualified government, charitable, and rollover contributions may also fall outside the limit.

Contributions made by parents, grandparents, friends, or the child are generally made with after-tax money. The contributor does not receive an individual retirement-account deduction for the contribution.

These personal contributions generally create tax basis in the account. That means the contributed amount has already been taxed and is not taxed again when it is later distributed.

However, investment earnings, the $1,000 federal contribution, qualifying employer contributions, and certain government or charitable contributions generally do not create basis. These amounts may be taxable when they are eventually withdrawn.

Because different contributions receive different tax treatment, accurate recordkeeping will be important.

An employer may contribute to the Trump Account of an employee or an employee's dependent under a qualifying written Trump Account contribution program.

Up to $2,500 per employee per year may generally be excluded from the employee's taxable income. This is a limit per employee, not a separate $2,500 limit for each of the employee's children.

For example, an employee with two children does not automatically qualify for $2,500 for each child. The employer contribution exclusion is generally limited to a combined $2,500 for that employee.

The employer contribution also generally counts toward the applicable $5,000 annual contribution limit for the child's account.

An employer cannot simply make an informal payment and assume it is tax-free. The employer generally needs a separate written program that satisfies the applicable eligibility, notification, nondiscrimination, and reporting requirements. Business owners should have the program reviewed before making contributions.

We are still waiting for further guidance from the IRS regarding some of the requirements and eligibility criteria, particularly for closely held businesses.

During the child's growth period, the account may be invested only in qualifying investments.

Eligible investments are generally low-cost mutual funds or exchange-traded funds that track a broad index made up primarily of U.S. companies. The funds cannot use leverage, and their annual fees generally cannot exceed 0.1% of the invested balance.

These restrictions are intended to encourage diversified, long-term investing rather than frequent trading or investment in a single company or industry.

Withdrawals are generally not permitted during the account's growth period.

The growth period ends on December 31 of the year in which the child turns 17. Before that period ends, distributions are allowed only in limited circumstances, such as a return of excess contributions or the death of the account beneficiary.

There is no general hardship-withdrawal option during the growth period.

Beginning January 1 of the year in which the child turns 18, most of the special childhood restrictions end. The account generally becomes subject to the distribution rules that apply to traditional IRAs.

This does not mean all withdrawals become tax-free.

A distribution may include both:

• A tax-free return of after-tax contributions; and
• Taxable earnings and other amounts that did not create basis.

Each distribution is generally divided proportionately between taxable and nontaxable amounts. The beneficiary ordinarily cannot choose to withdraw only the tax-free contributions first.

A withdrawal before age 59 and a half may also be subject to the 10% additional tax on early distributions unless an exception applies. Possible exceptions include certain higher-education expenses and a qualifying first-home purchase.

A Roth conversion may be an option, if appropriate for the former minor's tax situation. More details on how this can be done may be issued through future IRS guidance.

When a child eventually takes money out of a Trump Account, do not automatically assume the taxable portion will be taxed at the child's lower tax rate.

The taxable portion of a Trump Account distribution may be treated as unearned income and could be subject to the kiddie tax. When the kiddie tax applies, part of the child's unearned income may be taxed using the parent's tax rate instead of the child's lower rate.

This can apply not only to younger children, but also to an 18-year-old and, in some cases, a full-time student under age 24.

As a result, even a relatively modest Trump Account withdrawal could create a larger-than-expected tax bill. Families should consider both the taxable portion of the withdrawal and whether the kiddie tax may apply before taking money out.

Contributions made by parents, grandparents, and other individuals may be treated as gifts to the child.

The IRS has issued a safe harbor that may allow certain donors to avoid filing Form 709 for Trump Account contributions. The safe harbor has several requirements, including limits on the donor's other gifts and whether the donor is otherwise required to file a gift-tax return.

The safe harbor is relatively narrow. A person making larger gifts, gifts to several family members, or gifts of property other than cash should consult a tax professional before assuming that no gift-tax return is required.

Trump Accounts provide families with a new way to begin investing for a child's future. An eligible child may receive a one-time $1,000 federal contribution, and parents, relatives, employers, and others may make additional contributions.

However, families should understand that:

• Personal contributions are generally not tax-deductible;
• Annual contribution limits apply;
• Withdrawals are restricted before the year the child turns 18;
• Later withdrawals may be taxable;
• Early-withdrawal penalties may apply; and
• Employer contributions require a properly structured program.

The rules are new, and additional guidance may continue to be issued. Parents and business owners should review their circumstances with a qualified tax professional before making significant contributions or establishing an employer contribution program.