What to Know About Trump Accounts for Kids
For the first time, the federal government is offering investment accounts for kids that aim to help the next generation of Americans build a nest egg by exposing them to financial markets at a young age.
They’re called Trump Accounts. More than 7 million children are already enrolled, according to the U.S. Department of the Treasury, and many of them are eligible for a one-time $1,000 seed money payment into the account.
“American families, left on the sidelines of Wall Street for too long, will finally understand what a piece of the action feels like,” Treasury Secretary Scott Bessent said in a recent speech before the Financial Literacy and Education Commission. He noted that an estimated 38% of families have no exposure to the stock market and that Trump Accounts can help get that figure closer to zero.
Here’s what to know about the new accounts and whether they will live up to the hype.
What are Trump Accounts?
Created by the One Big Beautiful Bill Act, Trump Accounts are free, tax-deferred investment accounts for kids, similar to custodial brokerage accounts and individual retirement accounts, or IRAs.
While the program is overseen by the U.S. Department of the Treasury, the accounts themselves are administered by commercial banks.
Parents can open the accounts for any child with a Social Security number, and for eligible children born between Jan. 1, 2025, and Dec. 31, 2028, the Treasury Department will fund each account with a one-time deposit of $1,000. Not every child with an account will receive the incentive.
How do Trump Accounts work?
At first, the accounts work like a custodial brokerage account; that is, parents can open them up on behalf of their children and act as custodians of the accounts until the child turns 18. This period is known as the “growth period.”
At this stage, parents, friends and even employers can contribute up to a combined $5,000 per year into the investment accounts. This limit may increase annually based on inflation. Withdrawals from the account are restricted during this period.
In addition to the federal government’s $1,000 seed money, donors and state or local governments can also contribute to the accounts, and that sum will not count against the $5,000 annual limit.
The contributions must be invested in low-cost index funds that broadly track the U.S. stock market.
Investment options during the growth period include:
- State Street SPDR Portfolio S&P 500 ETF (SPYM)
- iShares Core S&P 500 ETF (IVV)
- Vanguard Total Stock Market ETF (VTI)
- State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
- iShares Core S&P total U.S. Stock Market ETF (ITOT)
The core idea behind Trump Accounts is to leverage time in the market and compound interest for years — even decades — to turn initial contributions into substantial sums once the children come of age.
On Jan. 1 of the year the child turns 18, the account leaves the growth period, ownership is transferred to the child, and the account essentially becomes an IRA, beholden to similar rules.
For instance, the funds can be used penalty-free for education (including job training), a home down payment of up to $10,000 or expenses related to starting a business. The initial contribution limits are also lifted, and they can only be made by the account holder at this point.
Qualified withdrawals are taxed as ordinary income. But if the funds are used for other expenses, they are taxed as income plus a 10% withdrawal penalty. Like IRAs, the penalty goes away once the account holder turns 59 1/2.
Who qualifies for Trump Accounts?
Any child with a Social Security number qualifies for an account as long as a parent or legal guardian opens and claims it for them.
To benefit from the $1,000 seed money from the federal government, those birth date restrictions apply: Jan. 1, 2025, to Dec. 31, 2028.
“We’re going to leave every child with real assets and a shot at financial freedom,” President Donald Trump said earlier this year at an event promoting the accounts. “All Americans will begin their lives with a beautiful nest egg.”
Additionally, dozens of major corporations have pledged to match either employee contributions or the federal government’s seed deposit of $1,000.
Some notable companies taking part in the program include:
- Bank of America
- BlackRock
- Chime
- Citi Bank
- Chipotle
- Dell
- IBM
- Steak ‘n Shake
- SpaceX
- Vanguard
- Wells Fargo
Several states have also announced that they will make Trump Accounts available to foster children (also known as “Fostering the Future” accounts). Additionally, Oklahoma, said that it will provide $250 in seed money to residents with eligible newborns.
How much could Trump Accounts be worth?
Because Trump Accounts are designed to benefit from compound interest gains, they could produce some potentially eye-popping returns from relatively small contributions.
“Assuming historical growth rates continue,” Bessent said at a June press event, “that single deposit in an index fund should grow to at least half a million dollars by the age of retirement.”
While that scenario is certainly possible, it is based on several assumptions that won’t apply to every account holder.
For example, the account holder would need to:
- Qualify for the government seed funding of $1,000
- Invest in the S&P 500
- Not touch the account for over six decades
In that case — and assuming historical S&P 500 growth rates of about 10% apply — an initial contribution of $1,000 today could grow to nearly $750,000 over 67 years.
Of course, the real value of that nest egg will be far less due to nearly seven decades of inflation. Still, if parents, employers or local governments contribute, that sum could be much higher.
Perhaps the greatest assumption is that the investments won’t be touched for over 60 years. Once young adults get access to the funds at 18, the temptation to use the money will run high. Many will surely want to use at least some of the money for college costs or homeownership before they reach retirement.
Alternatives to Trump Accounts
The two biggest comparisons to Trump Accounts are 529 college savings plans and custodial IRAs. Both accounts are opened by adults, usually parents or guardians, on behalf of children.
For 529 plans, contribution limits are much more flexible than Trump Accounts. Total lifetime 529 limits vary by state but are usually between $500,000 and $600,000. No annual limits apply. 529 plans also tend to have more flexible investment options, though they are set by individual states.
529 plan withdrawal rules are typically more flexible, as well. When used on education-related expenses, 529 withdrawals are tax-free. That includes up to $20,000 for tuition or fees for K-12 schools and up to $10,000 for student loan repayment. Non-qualified withdrawals are subject to income taxes and a 10% penalty.
If there is leftover money after schooling, up to $35,000 may be rolled over into a Roth IRA as long as the 529 plan has been open for at least 15 years.
The other main alternative to Trump Accounts is the custodial IRA. Like Trump Accounts, these can be opened on behalf of minors — usually by their parents. The accounts can be either Roth (pretax) or traditional (after-tax), whereas Trump Accounts only allow for after-tax contributions by parents.
Regular $7,500 annual IRA contribution limits apply to custodial accounts, and investment options are as flexible as regular IRAs.
At 18, the young adult takes ownership of the account and can begin investing in it like a typical IRA.
Depending on the savings goal, both 529 accounts and IRAs boast clear advantages for flexibility with investment options and contributions. An analysis from the financial research firm Morningstar suggests that a Roth IRA performs better than Trump accounts for long-term savings, and a 529 is better for education savings.
However, these alternatives lack one major perk of Trump Accounts: a $1,000 jumpstart contribution from the federal government for some newborns. If you qualify, Morningstar says to take advantage.
How to open a Trump Account
There are a few ways to sign up for a Trump Account.
In May, the Trump administration released an app to enroll, track and contribute to the accounts.
Other options include filling out IRS Form 4547 and filing it manually or by accessing the form through TrumpAccounts.gov. The form requires names, addresses, Social Security numbers and other basic information for each child associated with the account(s).
For children born within the date range for the $1,000 federal contribution, be sure to check box No. 7 if filing out the tax form directly.
Additionally, each physical form has fields for only two children, but any number of children in each family can qualify. For three or more children, use as many additional 4547 forms as necessary.
What’s next for Trump Accounts
One major critique of Trump Accounts is that the contributions are made after taxes, while alternative investment options allow for pretax contributions.
In August, the Treasury Department proposed a rule addressing that critique. The rule — which has not been finalized — parents and employers would be allowed to contribute up to $2,500 per year on a pretax basis. In separate guidance soon after, the Treasury further defined what investment options are available during the growth period and underscored that once that period is up, account holders can invest the funds however they want.
However, the guidance to date doesn’t spell out how withdrawals from accounts with a mix of pre- and post-tax contributions would be taxed. For most folks, the first withdrawal won’t be for 18 years, so there is still plenty of time to iron out those details.
Another question mark that remains is the funding for the one-time $1,000 seed payments from the government. According to Morningstar, $17.5 billion was initially earmarked for seed money, but that funding does not get automatically renewed — and, depending on birth trends, it may not cover all children born before the December 2028 cut off date of the pilot period, essentially making the seed money first come, first served.
Editorial note: This article has been updated with new information on Trump Accounts. We will continue updating it as more details are confirmed.
