Trump Savings Accounts: Free Money from the Government

Child-focused tax benefits have taken many forms over the years. We’ve had child tax credits, dependent care credits, education credits, 529 accounts, UTMA and UGMA accounts, and more. But the recent approval A big beautiful bill (OBBB) introduced something entirely new: a federally seeded, tax-deferred savings product for children known as Trump Savings Accounts.

This is an important issue that parents, grandparents, legal guardians, and even employers should pay attention to. The federal government is donating $1,000 to eligible newborns. This is not a tax credit, a tax deduction or anything else. It is actual cash that the government deposits into a bank account. And that’s just the beginning.

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

What is a Trump savings account?

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

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

• Be a citizen of the United States
• Born between 1/1/2025 and 12/31/2028
• Have a Social Security number

There are no income limits for parents or guardians. Each qualifying child receives the initial deposit. However, parents and guardians can also make additional deposits into the account. Let’s delve into the details.

Contribution rules and limits

In addition to the initial money from the government, parents, relatives, friends and even employers can make contributions to the savings account until the child turns 18.

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

Contributions are not tax deductible for the donor and are not treated as income for the child. However, the money grows tax deferred until the child begins 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, and room and board.
• Expanded definition of education to include certified vocational and trade programs
• First time home purchase
• start a business

If the recipient uses the money for anything else before turning age 59½, he or she will have to pay ordinary income taxes and a 10% penalty on the amount withdrawn. These are the same consequences as having a non-qualified distribution from a retirement account.

Account Investment Vehicles

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

• Track the returns of a qualified index
• Does not use leverage
• It does not have commissions and annual expenses greater than 0.1% of the investment fund balance

The term “qualified index” means:

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

So how do you open an account?

Open a Trump Savings Account

First, as mentioned above, you must have a qualifying child born between 1/1/2025 and 12/31/2028 to open an account. If you qualify, there are two ways to establish an account:

1. Eligible custodians can manually open accounts after 12/31/2025 at a licensed financial institution.
2. If no eligible custodian establishes an account in the name of a qualifying child within 12 months of the child’s date of birth, the Secretary of the Treasury will cause an account to be opened in the name of such child and maintained by a designated institutional custodian.

The Treasury has not issued guidance or an approved list of authorized financial institutions at the time of writing. But chances are that most major financial institutions (Fidelity, Vanguard, Ascensus, JP Morgan Chase, etc.) support the accounts.

Alternatives to the Trump Savings Account

Now let’s look at how Trump savings accounts compare to more familiar options, like 529 plans and custodial accounts, and explore which might be the best option for your financial goals.

Compared to Trump Savings accounts, Section 529 plans

• They are designed to help families save for education-related expenses.
• Contributions are not deductible at the federal level, but they are in some states.
• No contribution limits and considered gifts to minors.
• You can change the beneficiary
• Funds grow within the account tax-free.
• Qualified withdrawals are not taxable if used to pay
  • University Tuition and Fees
  • K-12 Enrollment
  • Accommodation and food
  • Books, supplies and technology required.
• Nonqualified distributions are taxed at ordinary rates and subject to a 10% penalty.

A Section 529 Plan Has the Advantage Over a Trump Savings Account YEAH The funds are used for university expenses. If flexibility is a priority, the advantage goes to the Trump Savings Account.

Compared to Trump Savings Accounts, Custodial Accounts (UTMA, UGMA)

• They are designed to allow an adult custodian to manage the assets of a minor.
• Contributions are not deductible at the federal or state level.
• No contribution limits and considered gifts to minors.
• You cannot change the beneficiary
• The funds can be used for anything that benefits the child.
• There is no tax shelter treatment, income is subject to child 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 that offered by a Trump savings account. Verdict? First, maximize contributions to the Trump Savings Account and second, fund a custodian account.

Are Trump Savings Accounts a Good Deal?