What Are Trump Accounts?

The One Big Beautiful Bill (OBBB), enacted on July 4, 2025, introduced a new type of individual retirement account specifically designed for children under the age of 18. Known as "Trump Accounts," these vehicles offer families a new way to invest in their children's financial futures. The IRS has since issued interim guidance with proposed rules generally taking effect on or after January 1, 2026. Here's what you need to know.

How Do Trump Accounts Work?

A Trump Account is a tax-advantaged savings account established for the exclusive benefit of an eligible child. While it functions similarly to an IRA, it is subject to special rules that apply only during the growth period, beginning when the account is opened and ending on December 31 of the year the beneficiary turns 17.

During the growth period:

• Contributions (principal) are made with after-tax dollars and are not tax-deductible
• Investment earnings grow tax-deferred and are taxed as ordinary income when withdrawn after age 18
• Distributions generally cannot be taken
• Annual contributions are capped at $5,000 per year, indexed for inflation after 2027
• Investments are restricted to eligible options, such as index-tracking mutual funds or ETFs

After the child turns 18, traditional IRA rules apply, including those governing contributions, required minimum distributions (RMDs), and the 10% early withdrawal penalty for non-qualified distributions.

How Do You Open a Trump Account?

Unlike a traditional IRA, Trump Accounts must be initially created by the U.S. Treasury Secretary. To have an account established, an authorized individual (typically a parent or guardian) must make a formal election using Form 4547 (Trump Account Election(s)). The child must have a valid Social Security number before the election is made and must not have turned 18 before the close of the calendar year in which the election is filed. Importantly, only one Trump Account may hold funds for a given child at any time.

The form may be filed online, or with your 2025 tax return. Lumsden McCormick recommends filing Form 4547 online at Trump Accounts - Jumpstarting the American Dream. As more information is released about Trump Accounts, individuals will be directly contacted about the accounts they have filed for.

The US Treasury has named BNY Mellon and Robinhood have been designated to administer these accounts. More information is expected to be available in May 2026.

Who Qualifies for the Trump Account Pilot Program Contribution?

One of the most notable features of the new law is a one-time $1,000 government contribution available through a pilot program for eligible children. To qualify, a child must:

• Have been born between January 1, 2025, and December 31, 2028
• Be a U.S. citizen
• Have a valid Social Security number
• Not have previously received a pilot program contribution

The election for the pilot program contribution can be made anytime from birth through December 31 of the year the child turns 17, using the same Form 4547. Only the first processed election results in the $1,000 contribution. No contributions will be made before July 4, 2026. Pilot program contributions do not count toward the annual $5,000 contribution limit.

Who Can Contribute to a Trump Account?

Beyond parents and family members, Trump Accounts can receive contributions from several other sources:

• Employers may contribute up to $2,500 per year (indexed for inflation after 2027) to a Trump Account for an employee or the employee's dependent. These contributions are generally excluded from the employee's taxable income. It is important to note that employer contributions do count toward the $5,000 annual limit.
• States, the federal government, tribal governments, and certain nonprofits can make qualified general contributions for eligible groups of children. These contributions go through the Treasury Department and are not included in the annual limit.
• Qualified rollover contributions from another Trump Account are also permitted during the growth period and do not count toward the annual limit

One important distinction from traditional IRAs: contributions must be made within the calendar year to count toward that year's limit. The deadline does not extend to April 15 of the following year.

Trump Account vs. Existing Savings Options

Trump Accounts are not necessarily the best option for families focused on education savings. It is worth comparing them to existing vehicles:

• 529 Plans allow tax-deferred growth, and withdrawals used for qualified education expenses are tax-free, while Trump Account distributions are taxed as ordinary income. Contributions to 529 plans may also qualify for state tax deductions, and there is no annual contribution cap (beyond gift tax considerations). Up to $35,000 in a 529 plan held for at least 15 years can even be rolled over into a Roth IRA, a potentially significant advantage.
• Coverdell Education Savings Accounts (ESAs) offer broader investment options than Trump Accounts but are capped at $2,000 per year and are subject to income-based contribution limits.

For families whose primary goal is general long-term wealth building rather than education funding specifically, Trump Accounts may offer a useful complement to existing strategies.

What Should You Do Now?

Trump Accounts represent a new and still-evolving area of tax planning. The IRS has signaled that additional guidance is forthcoming, and we will continue to monitor developments.

If you have questions about whether a Trump Account makes sense for your family, or how it fits into your broader financial and tax strategy, please reach out to our team. We're here to help you evaluate your options and make the most of the tools available to you.