The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, introduced Trump Accounts, a new government-sponsored savings vehicle designed to 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 legal guardians may open and manage the account on the child’s behalf. 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
Currently, there are two ways to open a Trump Account for children under 18 and claim the government’s $1,000 seed contribution for children born in 2025.
First, when filing a 2025 federal tax return (due April 15, 2026), a parent or guardian may complete the newly established Form 4547. If the child was born in 2025, the filer may elect on this form to claim the government’s seed contribution.
Second, the government plans to launch an online portal in the summer of 2026. Parents and guardians will be able to open accounts and claim the $1,000 seed funding directly through this platform once it becomes available.
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.
Corporations may contribute up to $2,500 per year per beneficiary, and these contributions are tax deductible at the corporate level. Any contributions from a corporation count towards the $5,000 annual 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 attains 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.
It is also worth pointing out that contributions to Trump Accounts may not qualify for the federal annual gift tax exclusion. Because the beneficiary cannot access the funds until a future year, these contributions are considered a “gift of future interest.” As a result, contributions do not qualify for the annual exclusion and instead reduce the contributor’s federal estate and gift tax exemption. It is possible that Congress will address this issue in the future to make gifts to Trump accounts eligible for the annual exclusion.
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.
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