The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, introduced Trump Accounts, a new government-sponsored savings vehicle designed to help provide a financial head start for U.S. children. Under the legislation, the federal government will make a one-time $1,000 seed deposit for eligible children born between 2025 and 2028.
Trump Accounts are available to all U.S. citizens under the age of 18 with a valid Social Security number. Parents or grandparents may open and manage the account on the child’s behalf; note that only one Trump account is permitted per child. The account grows tax-deferred, like an IRA. Unlike an IRA, however, the child need not have earned income to contribute to a Trump account.
Opening a Trump Account
During the 2025 tax season, Form 4547 was introduced to allow parents and guardians to open accounts for their children and claim the $1,000 seed contribution for eligible children. If the form was not filed during tax time, the form can be submitted online via the IRS website. Additionally, the government launched an app for parents and guardians to download and use to manage the accounts from their phones.
How Trump Accounts Work
After the account is opened and funded, assets will be invested in low-cost index funds. Parents, grandparents, and other individuals may contribute up to $5,000 per year per account. All contributions are aggregated and no account can have more than $5,000 of contributions in a single year. These contributions are not tax deductible for individuals. Additionally, the IRS recently clarified that contributions are eligible for the annual exclusion for gift tax purposes.
Employers may contribute up to $2,500 per year per beneficiary, and these contributions are tax deductible at the corporate level. An employer can make contributions for an eligible employee or the child of an eligible employee. Any employer contributions count toward the $5,000 annual contribution limit. Additionally, government organizations and charitable organizations can make contributions to the accounts. These contributions do not count towards the $5,000 contribution limit.
Once the beneficiary reaches age 18, distributions may be taken for qualified purposes, including education, a home purchase, or starting a business. Distributions are generally subject to ordinary income tax and may incur penalties depending on the use of funds.
Once the child reaches age 18, the account will be treated as a traditional IRA and will be able to be rolled into another IRA account. Generally, distributions will be subject to the
same rules as IRAs which includes a 10% penalty if distributed before age 59 ½ for a nonqualified purpose.
Additional Considerations
When evaluating whether a Trump Account is an appropriate savings strategy, it is important to consider future tax implications, broader gifting strategies, and the limited permitted uses of the funds. Because distributions are taxed at ordinary income tax rates, a child’s future earning potential and anticipated tax environment should be considered.
Other savings vehicles may be more suitable in certain circumstances. For example, 529 plans may offer state tax benefits and tax-free withdrawals if used for qualified education expenses, while UTMA accounts are generally taxed at the beneficiary’s capital gains rates rather than ordinary income rates and can be used for any purpose without penalty.
Notably, Trump Accounts are not required to be distributed at age 18. Funds may remain invested and continue to grow until the beneficiary chooses to take distributions, even if that occurs later in life.
Trump Accounts offer a meaningful opportunity for children to receive a financial head start. Given the complexity of the rules and tax considerations, careful planning is recommended. Please contact your Altair team for guidance on the most effective strategies for gifting to children and grandchildren.
________________________________________________
The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Although we made efforts to verify the accuracy of the information, Altair Advisers cannot guarantee its accuracy. Please see Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/ for additional information about Altair Advisers’ business practices and conflicts identified.