President Donald Trump’s recently signed “Big Beautiful Bill” includes the launch of a new savings initiative known as “Trump accounts” — individual tax-advantaged accounts for children, seeded with a $1,000 federal deposit at birth. But tax experts say that while the accounts offer a flashy start, the fine print raises more questions than answers.
A New Retirement-Like Account for Newborns
Starting in July 2026, every child born in the U.S. between 2025 and 2028 will receive a $1,000 deposit from the federal government into a newly created “Trump account.” These accounts function similarly to individual retirement accounts (IRAs), with the funds growing tax-deferred and eventually taxed as ordinary income upon withdrawal.
Parents and other individuals can contribute up to $5,000 annually in after-tax dollars until the child turns 18. Employers are also permitted to contribute up to $2,500 without the contribution being counted as taxable income. Both contribution limits will be adjusted for inflation. Funds will be invested in low-cost index funds tracking the U.S. stock market.
The Catch: Limited Access and Unclear Tax Advantages
Though the accounts are being promoted as a tool to build wealth from birth, they come with significant restrictions. According to Ben Henry-Moreland of Kitces.com, Trump accounts essentially become traditional IRAs once the child turns 18 — meaning penalty-free withdrawals are not allowed until age 59½. Early withdrawals incur a 10% penalty, with limited exceptions such as first-time home purchases or qualified education expenses.
Initial versions of the bill had broader uses — such as college costs, home down payments, or small business startup capital — available at 18. But those provisions were scrapped in the final legislation, leaving fewer options for early access.
“These accounts are a good idea, but they’re saddled with unfavorable tax treatment,” said Zach Teutsch, managing partner at Values Added Financial in D.C. “Unlike Roth IRAs, you don’t get tax-free withdrawals — and unlike 529 plans, the tax benefits are limited.”
What Tax Experts Are Saying
- Partial Taxability: Since Trump accounts include a mix of seed money, after-tax contributions, and investment growth, portions of withdrawals may be taxable.
- No Earned Income Requirement: Unlike traditional or Roth IRAs, children don’t need to have earned income to receive contributions — a plus for early saving.
- Lack of Investment Flexibility: Funds are limited to stock-based investments until the beneficiary turns 18, reducing the ability to rebalance toward safer assets as they age.
“This is essentially a retirement account for children,” said Henry-Moreland. “But one that locks the money up for decades unless you’re willing to pay a penalty.”
Better Alternatives?
Most financial planners still recommend 529 college savings plans over Trump accounts. While 529 plans also carry penalties for non-education uses, they allow for larger contributions (up to $19,000 annually per donor, or $38,000 for couples), offer flexible investment options, and feature tax-free growth and withdrawals for qualified expenses.
In recent years, 529 rules have expanded to include student loan payments, apprenticeship programs, and even allow for rollovers to Roth IRAs under certain conditions.
“Given the limitations of Trump accounts, most families would be better off prioritizing a 529,” Henry-Moreland said.
A Tool for the Wealthy?
Some advisors suggest that wealthier families could use Trump accounts to supplement 529 plans, especially since the former doesn’t require earned income for contributions. But Teutsch notes that “most Americans don’t even put one dollar into 529s — let alone max them out.”
Final Takeaway
While the Trump account’s $1,000 seed money may be appealing, its long-term structure and complex tax implications may not make it the most practical option for many families. For now, financial experts are calling for more clarity from the Treasury Department and IRS on how the rules will work — and how everyday savers can make the most of the opportunity.
