Trump Accounts: How Parents Can Give Their Kids a $1,000 Head Start on Retirement

pscdfw
Aug 18
3 min read

Key Takeaways:

Early Start – Qualifying children born between 2025 and 2028 will automatically receive $1,000 in their Trump Account from the federal government.
No Earned Income Needed – Unlike traditional IRAs, your child doesn’t need to work before the account can receive contributions.
Multiple Funding Sources – Parents, grandparents, employers, nonprofits, and the government can all contribute—within certain rules.
Tax-Deferred Growth – Earnings grow tax-deferred until withdrawn in adulthood.
Limited Investments – Funds must be invested in diversified index-based funds.
Contribution Window Opens July 4, 2026 – Planning ahead will help you maximize the benefit.

What Are Trump Accounts?

The One Big Beautiful Bill Act (OBBBA) introduced Trump Accounts as a new retirement savings option for children. Think of them like a traditional IRA for kids, but with more flexible eligibility and some unique funding rules.

Similarities to a Traditional IRA:

Tax-deferred growth.
Withdrawal penalties before age 59½ (with certain exceptions).
Contribution limits.

Differences:

No requirement for the child to have earned income.
Limited investment options.
Contributions can come from more sources (not just the account owner).
No access to funds until the year the child turns 18.

Why This Matters — The Power of Starting Early

Starting early can turn small contributions into significant balances through compound growth.

Example:

$1,000 contribution at birth
Invested in a fund earning an average 7% annual return
No further contributions
Value at age 65: $32,000+

Now, imagine annual contributions of $5,000 starting at birth:

Age	Annual Contribution	Total Contributions	Projected Balance (7% return)
18	$5,000	$90,000	$152,000
30	$0 (no more added)	$90,000	$308,000
65	$0 (no more added)	$90,000	$2.3 million

This is the magic of compounding — the earlier the start, the bigger the result, even if contributions stop after childhood.

Who Can Contribute and How Much?

Here’s how the rules break down:

Individuals (Parents, Grandparents, Others)
- Up to $5,000/year, adjusted for inflation starting 2028.
- Can be funded with after-tax dollars, creating a nontaxable “basis” in the account.
Parent’s Employer
- Can contribute up to $2,500/year that’s excluded from the parent’s taxable income.
- Counts toward the $5,000 limit.
Government or Nonprofits
- Can contribute any amount to a “qualified group” of children (e.g., all 1st graders in a school district), provided every child in the group gets the same amount.
- Does not count toward the $5,000 limit.
Federal Government
- One-time $1,000 contribution for qualifying children born 2025–2028.

Investment Rules

Funds must be placed in diversified mutual funds or ETFs that track an established equity index (e.g., S&P 500). The Treasury will confirm eligible indexes.

Why Index Funds?

Broad diversification
Lower fees than actively managed funds
Historically strong long-term performance

Withdrawal Rules and Exceptions

Funds cannot be accessed until January 1 of the year your child turns 18. After that, standard IRA rules apply. Withdrawals before 59½ are generally taxed as income plus a 10% penalty—unless for:

Higher education expenses
Up to $10,000 for a first home purchase
Up to $5,000 per child for birth or adoption expenses

Tax Treatment of Withdrawals

Each withdrawal is part basis (nontaxable) and part taxable (earnings and certain contributions).

Example:

Total account balance: $100,000
Basis: $40,000 (from parents’ after-tax contributions)
Earnings & other contributions: $60,000 (taxable portion)
A $10,000 withdrawal = $4,000 tax-free + $6,000 taxable at ordinary rates.

Planning Tips for Families

Coordinate With Other Accounts – Trump Accounts can complement 529 college plans and custodial accounts.
Maximize the Early Years – The earlier the contributions, the more compounding works in your favor.
Use Employer Contributions – If your employer offers this benefit, it’s essentially “free money.”
Consider Gifting Strategies – Grandparents may use annual gift exclusions to fund accounts without triggering gift tax.

Timeline & Next Steps

Now – Learn the rules, plan contributions, and coordinate with your financial advisor.
July 4, 2026 – Accounts open for contributions.
Ongoing – Review performance annually, adjust contributions if needed.

Bottom Line: Trump Accounts could become one of the most effective ways to give your child a head start on retirement savings. Combined with other strategies, they can set the stage for a lifetime of financial security.

Shifflett & Philips can help you evaluate Trump Accounts alongside your broader tax and financial plan so you’re ready when they launch.