Understanding Trump Accounts

What is a ‘Trump’ Account?

A Trump account is a new type of Traditional IRA for minors created by the OBBA (IRC Sec. 530A) to encourage long-term investing from a young age. The federal government and several philanthropists have pledged seed money for certain eligible beneficiaries as part of the pilot program for these accounts.

Given the extended build up and continued revisions from the IRS, families should understand the structure, limitations, and tax implications before implementing into their financial plan. For many families, this account may serve as a supplement, not a substitute, to current investment account options for minors.

Key Basics & Guidelines

Who is Eligible?

• Any U.S. citizen under age 18 with a Social Security number
• $1,000 seed contribution from U.S. Government for children born from 1/1/2025 to 12/31/2028
• File IRS Form 4547 to open the account — online at www.IRS.gov/trumpaccounts
• The U.S. Treasury initially hosts accounts; once validated, they may be rolled to a qualified financial institution (partial rollovers not permitted)

Contributions

• Annual limit: $5,000/child from individuals (parents, grandparents, others) and employers ($2.5K max)
• Contributions are after-tax; no deduction allowed under IRC Sec. 219
• Some charitable foundations have pledged additional seed contributions for eligible children in qualifying income ZIP codes (seed contributions do not count toward annual $5K limit)
• After the growth period, contributions follow traditional IRA rules around earned income and limits

Limitations During Growth Period

• The growth period for a Trump account starts on the date the account is established and ends on December 31st of the year before the calendar year in which the child turns age 18.
• Funds must be invested in eligible low-cost U.S. stock index funds or ETFs (expense ratio 0.10%)
• Current IRS guidance generally restricts withdrawals during the growth period.
• After the growth period, most of the special rules no longer apply and the rules governing traditional IRAs generally apply.

Tax Structure

• Tax-deferred Account – no taxes until withdrawal
• After the growth period, treated as a Traditional IRA and can be consolidated into another IRA or converted to a Roth IRA (pro-rata rule applies)
• All growth and seed contributions are taxed as ordinary income — the authorized individual overseeing the account is responsible for tracking after-tax contributions to avoid double taxation in the future.

Example: A child receives a $1,000 government contribution, a $250 charitable contribution, a $2,500 employer contribution, and $5,000 from a parent. Under current IRS guidance, only the parent’s contribution creates tax basis. If the account grows from $8,750 to $20,000 and a $5,000 withdrawal is made, $1,250 ($5K/$20K or 25%) is non-taxable and $3,750 taxed as ordinary income. Any subsequent withdrawals would require a new calculation with basis now reduced from $5,000 to $3,750.

The example provided is hypothetical and is provided for informational purposes only. It is not intended to represent any specific investment, nor is it indicative of future results.

How Trump Accounts Compare to Other Children’s Accounts

Account Feature	Trump Account	529 Plan	UGMA/UTMA	Custodial Roth IRA	Coverdell ESA
Tax treatment	Tax-deferred (traditional IRA rules)	Tax-free for qualified education	Taxable (kiddie tax may apply)	Tax-free growth & withdrawals after 59½	Tax-free for qualified education
Annual contribution limit	$5K total, incl. $2.5K employer	No limit (gift tax rules apply)	No limit (gift tax rules apply)	Lesser of $7K or earned income	$2,000
Earned income required	Not during growth period	No	No	Yes	No
Use of funds	Flexible – intended for retirement	Education	Unrestricted at age of majority	Flexible – intended for retirement	Education
Withdrawals taxed?	Yes, taxed as ordinary income1; 10% penalty tax prior to 59½; exceptions apply2	No, if used for qualified expenses; 10% penalty + tax on growth if non-qualified	Yes, capital gains rates apply	Only on growth prior to age 59½ ordinary income plus 10% penalty3	No, if used for qualified expenses 10% penalty + tax on growth if non-qualified
FAFSA Impact4	Likely student asset up to 20%	Parent asset up to 5.64%	Student asset up to 20%	Not counted as an asset	Parent asset up to 5.64%
Child gain control	At 18 (converts to traditional IRA)	Parents retain control	At 18-21 (varies by state)	At 18 (Roth IRA rules apply)	At 18 (must use by 30)
Government seed	$1,000 for births 2025-2028	None (some state matches)	None	None	None

Common Misconceptions

Misconception	Reality
“It’s like a Roth – growth is tax-free.”	Growth is tax-deferred, not tax-free. All withdrawals above basis are taxed as ordinary income on a pro-rata basis.
“My contributions are tax-deductible”	Contributions are after-tax. No deduction is allowed under IRC Sec. 219. Employer contributions through Sec. 125 cafeteria plan may be pre-tax.
“My child can withdraw freely at 18”	At 18 the account converts to a traditional IRA. Withdrawals before 59 1/2 are taxed as income and subject to a 10% early withdrawal penalty, unless an exception applies
“Withdrawals for college are tax-free”	The 10% early withdrawal penalty is waived for qualified education expenses – but the withdrawal is still fully taxed as ordinary income.
“Every newborn gets the $1000 see.”	The pilot contribution applies only to children born January 1, 2025 through December 31, 2028, who are U.S. citizens with an SSN.
“It replaces a 529 for college savings.”	529 plans remain superior for pure education savings: tax-free qualified withdrawals, better FAFSA treatment (parent vs. student asset), and flexible beneficiary changes.

Our Perspective

While the government seed contribution and potential additions from employers and philanthropists are appealing, there are significant limitations from a planning perspective. College savings accounts remain a better solution for families planning for future education costs. The ideal retirement solution would be a custodial Roth IRA if the minor is able to earn income through childhood jobs like lawn mowing, dog walking or babysitting. For maximum flexibility, custodial investment accounts allow for the highest contributions and funds may be withdrawn for any purpose at any time, though parent/guardians lose control at 18/21.

Enrolling to capture government seed money and any potential employer and charitable contributions makes sense. However, limiting individual contributions will keep future distributions and conversions less complex.

Education is a core value at Trillium Wealth – as well-informed clients make the most confident decisions. Our team is uniquely positioned to help you navigate complex investment, tax, and estate planning matters with practical insights and seasoned advisors.

Sources:

Internal Revenue Service. (2025). Trump Accounts. www.irs.gov/trumpaccounts

Internal Revenue Service. (2025). Instructions for Form 4547. (Rev. December 2025). www.irs.gov/instructions/i4547

Internal Revenue Service. (2025). Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs). www.irs.gov/publications/p590b

Internal Revenue Service. (2025). Notice 2025-95: Guidance on Trump Accounts.

1. See “Tax Structure” section regarding excluding basis from individual contributions from future distributions. ↩︎
2. There are several exceptions to the 10% penalty for Trump accounts, IRAs, and Roth IRAs, such as education and first-time home purchases up to specific limits. Consult your financial advisor or tax accountant for more details. ↩︎
3. Roth Conversions have specific rules. There is a 5-year waiting period for withdrawing converted dollars and withdrawals within that period could create a 10% penalty tax prior to age 59 1/2 but no ordinary income. ↩︎
4. FAFSA treatment is based on current regulatory expectations pending final IRS guidance. ↩︎

Trillium Wealth nor &Partners renders legal or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences. &Partners is the enterprise trade/marketing name for Ampersand Partners LLC, a Delaware limited liability company, and its subsidiary, &Partners, LLC, a Tennessee limited liability company registered with the U.S. Securities and Exchange Commission as a broker-dealer and investment adviser. Securities and investment advisory services o?ered through &Partners, LLC, member FINRA and SIPC.