Essential FAQs for Parents on Trump Accounts: What You Need to Know

The introduction of Trump Accounts has generated significant interest, particularly due to the federal government’s offer of a $1,000 contribution for newborns. However, the specifics surrounding these accounts remain somewhat unclear. This article aims to clarify essential information for parents looking to set up accounts for their children.

Overview of Trump Accounts

Trump Accounts are designed as IRA-style savings accounts for eligible children. Like traditional IRAs, funds within these accounts grow tax-deferred until withdrawal. However, the regulations governing contributions and withdrawals differ notably.

Eligibility Criteria

• Children must be under age 18 at the end of the year when the account is established.
• Accounts are available only to U.S. citizens with a valid Social Security number.
• Each child can have only one Trump Account, opened by an authorized individual, typically a parent or legal guardian.

Federal Contribution Details

Children born between January 1, 2025, and December 31, 2028, may receive a one-time $1,000 contribution from the federal government if an account is opened by an authorized individual. Parents must fill out Form 4547 to apply for this contribution.

How to Open an Account

To initiate an account, parents should submit Form 4547 electronically with their 2025 federal income tax return. Starting in summer 2025, an online portal will be available for account creation.

Upon submission, the Treasury will activate the account through a designated authentication process, allowing for further contributions after July 4, 2026.

Funding Sources

• Federal Contributions: A one-time $1,000 contribution per eligible child.
• Employer Contributions: Employers can contribute up to $2,500 annually per employee’s child, tax-free to the employee.
• Family and Friends: Contributions are allowed without tax deductions.
• Nonprofit Organizations and Philanthropists: These entities can contribute but under specific conditions.

Combined contributions from family and employers cannot exceed $5,000 annually per single account, excluding government and nonprofit donations.

Investment Requirements

Funds must be invested in low-cost, diversified US stock index funds or exchange-traded funds, with expense ratios capped at 0.10%. Initial management will be through a Treasury-designated financial agent, with future rollovers permitted to the child’s preferred brokerage firm.

Withdrawal Regulations

Funds are generally inaccessible until the child turns 18, at which point they may either withdraw or keep the funds invested. Withdrawn amounts will typically be subject to income tax, and non-approved withdrawals before age 59.5 could incur a 10% penalty, unless used for education or buying a first home.

Considerations for Families

While the concept of investing in a child’s future is appealing, concerns exist regarding the program’s accessibility for lower-income households. Many families struggle to make regular contributions, making it challenging to capitalize on the account’s potential benefits. Critics argue that without substantial outreach, families with limited means may not fully utilize these accounts, especially post initial federal contributions.

As the rollout of Trump Accounts progresses, families should remain informed and take advantage of available resources to understand how these accounts can benefit their children’s financial futures.