Trump Savings Accounts – Free Money from the Government

Child focused tax benefits have taken on many forms over the years.  We’ve had child tax credits, dependent care credits, education credits, 529 accounts, UTMA & UGMA accounts, and more.  But, the recently passed One Big Beautiful Bill (OBBB) introduced something completely new: a federally seeded, tax deferred savings product for children known as Trump Savings Accounts.

This is a big deal that parents, grand parents, legal guardians, and even employers should pay attention to.  The federal government is giving $1,000 to eligible new born babies.  This isn’t a tax credit, a tax deduction, or anything else.  It is actual cash the government deposits into a bank account.  And that is just the beginning.

We’ll unpack what these new Trump Savings Accounts are, who qualifies, how to maximize contributions, and what they can be used for. We’ll also compare these to other  accounts designed for children and see how they differ from what is already available.

What is a Trump Savings Account?

A Trump Savings Accounts is a tax-deferred custodial account that is structured like a Roth IRA.  Qualifying children will receive a seed deposit of $1,000 from the federal government, beginning 1/1/2026.

To be absolutely clear, this is FREE money from the government! To qualify,  a child only needs to:

• Be a United States Citizen
• Be born between 1/1/2025 and 12/31/2028
• Have a Social Security number

No income limits for the parents or guardians exist. Every single qualifying child receives the seed deposit.  However, parents and guardians can make additional deposits into the account as well.  Lets dig into the details.

Contribution Rules and Limits

In addition to the government seed money, parents, relatives, friends, and even employers can make contributions into the savings account until the child reaches age 18.

The annual contribution limit is $5,000/child, indexed for inflation in future years.  Employer’s can also contribute up to $2,500 per child, which counts towards the $5,000 contribution cap.  Ignoring the inflation adjustments, it’s possible for a child to have $90,000 deposited into their account by the time they reach 18!  That is serious money.

Contributions aren’t tax-deductible for the donor and aren’t treated as income to the child.  The money grows tax deferred, however, until the child starts withdrawing the funds.

The IRS determines the tax rate on a distribution based on how the recipient uses the funds.  The tax rate is the same as long term capital gains tax rates on qualified withdrawals.  A qualified withdrawal includes the following:

• Education, including tuition, supplies, & room and board.
• Expanded definition of education to include certified trade and vocational programs
• First time home purchase
• Starting a business

If the recipient uses the money for anything else before turning 59½, they must pay ordinary income taxes and a 10% penalty on the amount withdrawn. These are the same consequences as taking a nonqualified distribution from a retirement account.

Account Investment Vehicles

The money must be invested within specific eligible investments as detailed in the OBBB. Eligible investment means any mutual fund or exchange traded fund which:

• Tracks the returns of a qualified index
• Does not use leverage
• Does not have annual fees and expenses of more than 0.1% of the balance of the investment fund

The term “qualified index” means:

• The S&P 500 market index, or
• Any other index which is
  • comprised of equity investments in primarily United States companies, and
  • for which regulated futures contracts are traded on a qualified board or exchange

So how do you open an account?

Opening a Trump Savings Account

First, as previously discussed, you must have a qualifying child born between 1/1/2025 – 12/31/2028 to open an account.  If qualified, there are two ways to establish an account:

1. Eligible custodians can manually open accounts after 12/31/2025 with an authorized financial institution.
2. If no eligible custodian establishes an account on behalf of a qualified child within 12 months of the child’s date of birth, the Secretary of Treasury shall cause an account to be opened in the name of such child and held by a designated institutional custodian.

The treasury hasn’t issued guidance or an approved list of authorized financial institutions at the time of this writing.  But most likely, a majority of the major financial institutions (Fidelity, Vanguard, Ascensus, JP Morgan Chase etc.) will support the accounts.

Trump Savings Account Alternatives

Now let’s see how Trump Savings Accounts stack up against more familiar options like 529 plans and custodial accounts, and explore which might be the best fit for your financial goals.

As compared to Trump Savings accounts, Section 529 plans

• Are designed to help families save for education-related expenses
• Contributions are not federally deductible but are deductible in some states
• No contribution limits and considered as gifts to minor
• Can change beneficiary
• Funds grow inside of the account tax free
• Qualified withdrawals are not taxed, if used to pay for
  • College tuition and fees
  • K-12 tuition
  • Room and board
  • Books, supplies, and required technology
• Non-qualified distributions are taxed at ordinary rates and subject to a 10% penalty

A Section 529 plan has the advantage over a  Trump Savings Account IF the funds are used for college expenses. If flexibility is a priority, the advantage goes to the Trump Savings Account.

As compared to Trump Savings accounts, custodial Accounts (UTMA, UGMA)

• Are designed to allow an adult custodian to manage assets of a minor child
• Contributions are not federally or state deductible
• No contribution limits and considered as gifts to minor
• Cannot change beneficiary
• Funds can be used for anything that benefits the child
• No tax shelter treatment, income is subject to kiddie tax annually

A custodial account has the advantage over a Trump Savings Account when spending flexibility is the priority.  However, there is little to no tax advantage like a Trump Savings Account provides.  Verdict?  Max out Trump Savings Account contributions first, fund a custodian account second.

Are Trump Savings Accounts a Good Deal?