Understanding the Saving Implications of New Trump Accounts for Children

The One Big Beautiful Bill, enacted on July 4, 2025, establishes a new savings vehicle called “Trump Accounts” for children, featuring unique characteristics that distinguish it in the landscape of long-term savings options. Below is a high-level summary of this new account, its structure, and how it compares to other savings vehicles.   

Creation and Funding of Trump Accounts  

Every U.S. child born between January 1, 2025, and December 31, 2028, is eligible for a one-time $1,000 federal contribution into their established Trump account. Children born before 2025 can still have a Trump Account opened for them, but they will not receive the federal seed money.  

• Families, employers, and certain charitable organizations can contribute up to $5,000 per year per child, with employer contributions capped at $2,500 per year per employee’s child. These limits are indexed for inflation starting in 2027.  
• Employer contributions (up to $2,500 per year) are excluded from the employee’s gross income.  
• Funds must be invested in diversified mutual funds or ETFs tracking a U.S. stock index (e.g., S&P 500), with low fees and no leverage.  

Tax Treatment and Withdrawals  

Earnings in Trump Accounts grow tax-deferred, meaning when distributions are made, they are taxed as ordinary income. Early withdrawals (before age 59½) are generally subject to a 10% penalty, with exceptions for higher education, disability, domestic abuse, natural disaster, first-time home purchase (up to $10,000), and birth/adoption (up to $5,000).  

At age 18, the account is treated similarly to a traditional IRA for the beneficiary, but there is no required minimum distribution (RMD) requirement. The account owner can continue to defer taxes until withdrawals are made.  

Comparison to 529 Plans and IRAs

Contributions to Trump accounts and 529 plans do not provide for a federal income tax deduction. However, some states, including Michigan, do provide a state deduction for 529 plan contributions.    

529 plans allow for tax-free withdrawals, provided they are used for qualified education expenses. While Trump Accounts offer broader post-age-18 flexibility, the withdrawals are taxed as ordinary income and are only penalty-free for certain exceptions.  

Trump Accounts are similar to traditional IRAs in that they offer tax deferral and ordinary income taxation on withdrawal. However, Trump accounts are available from birth and do not require earned income for contributions.   

Roth IRAs, by contrast, offer tax-free withdrawals but require earned income and have lower contribution limits for minors than Trump accounts and 529 accounts.  

Comparison to Custodial Accounts (UGMA/UTMA) & Taxable Brokerage Accounts

Taxable brokerage accounts offer flexibility and capital gains tax treatment, which can be more tax-efficient than Trump Accounts, which tax distributions at ordinary income rates.  

Custodial accounts offer control and flexibility, but without the federal seed funding and tax-deferred growth that Trump Accounts provide.  

Learn More About Family Savings with Maner Wealth  

In summary, Trump Accounts offer an interesting early-stage savings option: free seed money, long-term compounding, and flexible accessibility. However, their tax and structural limitations mean they may not replace more favorable or specialized vehicles, but they can enhance or complement a family’s savings strategy.  

To learn more about all available family saving options and how to set up a strategy that will benefit your long-term financial growth, reach out to the Maner Wealth team today. We are here to help you live your best life and will work with you to find a solution tailored to your family’s needs.