There is a lot of buzz surrounding the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025. It brings sweeping changes that could significantly impact your financial planning. One key change is the creation of so-called “Trump Accounts”.

What is a “Trump Account”?

Trump Accounts are a child savings account that receive a $1,000 seed deposit from the Federal government. The accounts have a mix of complex provisions, some still needing clarification, before the child turns 18, however, they are treated like traditional IRAs thereafter.

Contributions can begin one year after the OBBBA was signed into law, meaning July 4, 2026, is the earliest date contributions will be accepted. Financial institutions do not yet have the systems in place to manage Trump Accounts.

Is my child eligible?

To receive the initial investment, your children must be born after December 31, 2024, and before January 1, 2029. They must also be a US citizen with a Social Security number.

You can still open a Trump Account for your child if they were born outside of that window, but they will not receive the initial investment.

Parents can voluntarily create accounts, but if they do not do so, the government will create one when the parents file their income tax return.

How do they work?

Each eligible child’s account will receive the $1,000 seed deposit. This money must be invested in a low-cost mutual fund or exchange-trade fund (ETF) that tracks a US stock index, like the S&P 500.

Family and other entities can make contributions to Trump Accounts. The annual contribution limit is $5,000 up until age 18. Employers can contribute too, up to $2,500 for an employee’s dependent child. These limits are indexed for inflation.

Once the child turns 18, the rules shift to that of a traditional IRA, contributions can be made if the account owner has earned income.

What is the money for?

Distributions are generally not permitted before the child turns 18. Once they are an adult, there are four ways to spend the money without incurring a 10% penalty: educational expenses, post-secondary credentialling, small business/farm expenses, or the purchasing of a first home. Withdrawals for these qualified expenses are taxed as ordinary income.

Since the account turns into a traditional IRA after the owner turns 18, withdrawals follow IRA rules. Due to the unique blend of contributions, tax treatment depends on the source of funds. For example, contributions from parents or family members are after-tax and non-taxable when withdrawn. The seed deposit and any employer contributions are taxable when withdrawn, as are earnings on the investments.

At present the tax treatment of Trump Accounts is not fully clear. As the logistics are fleshed out, it is anticipated that the IRS or Treasury Department will further clarify taxation.

How does it compare to other options?

529 Plans are usually the first thought when saving for young children. 529s are used for education expenses, and withdrawals outside of that use can be penalized. Earnings grow tax-free as do withdrawals, if used for qualified educational expenses.

Custodial accounts, like UTMAs or UGMAs, are designed for more general savings for minors. There is no contribution limit, but gifts over a certain amount can trigger a gift tax. There is flexibility with how to use the funds, but they lack the tax advantages of other plans.

For children with earned income, Roth IRAs allow contributions of $7,000 per year (or capped by the child’s earned income if below $7,000). Funds are tied up until age 59.5, but there is no tax owed since contributions must be after tax.

What’s the bottom line?

The phrase “there is no such thing as a free lunch” goes around often and it generally holds true. However, the Trump Accounts provide a $1,000 deposit to newborns if eligible per the OBBBA, even if no further contributions are made. This proverbial “free lunch” can grow tax-deferred for many years and provide flexibility in savings for your children.

It is important to consider how a Trump Account would fit into other savings plans you might have. You must evaluate where your contribution dollars might have the best opportunity to benefit your child, being aware of both the advantages and the limitations.