A New Kind of Savings Account for Kids Just Launched
On July 4, a brand-new type of federal investment account for children — officially called a Trump Account — went live across the country. Within a short window, more than 6 million accounts had already been opened for children under 18, according to the Treasury Department, and roughly 1.4 million of those are set to receive a widely publicized $1,000 federal starter contribution for newborns.
Six million sounds like a lot, but it’s still a small slice of the tens of millions of children under 18 who could technically qualify for one. If you’re trying to figure out whether to open one, or you already have and want to understand what you actually signed up for, here’s the plain-English version of how these accounts work — eligibility, contribution rules, taxes, and everything in between.
What Exactly Is a Trump Account?
Think of it as an IRA — the retirement account most working adults are familiar with — but built specifically for kids. Money contributed grows tax-deferred, meaning you don’t pay tax on investment growth year to year. The account technically belongs to the child, but a parent, legal guardian, or another approved adult manages it as “custodian” until the child turns 18. That 18-year stretch is officially called the account’s “growth period,” and it comes with its own distinct set of rules that are different from a normal adult IRA.
One key detail: money contributed by individuals — parents, grandparents, family friends — has to come from after-tax income, the same as regular take-home pay. There’s no upfront tax deduction for putting money in.
Who’s Actually Eligible?
The rules here are more specific than they might first appear:
- The child must be a US citizen with a valid Social Security number
- No child can have more than one Trump Account
- To qualify for the $1,000 federal starter contribution specifically, the child must have been born between January 1, 2025 and December 31, 2028
- The child must be under 18 at the end of the calendar year the account is opened, according to IRS rules
The adult opening the account also has to meet a specific requirement if they’re applying for that $1,000 payment: they need to be able to claim the child as a dependent for child tax credit purposes. If a family isn’t applying for that starter payment, the account can instead be opened by a parent, legal guardian, adult sibling, or grandparent.
How Do You Actually Open One?
Opening an account requires filling out Form 4547 — the same form used to apply for the $1,000 pilot contribution if a newborn qualifies. To make things easier going forward, the Social Security Administration has said it will build an automatic enrollment process for newborns, tied directly into the birth registration process when parents apply for their child’s Social Security number.
Who Can Put Money In, and How Much?
This is where the rules get genuinely layered, because different types of contributors face different limits and tax treatment.
Family and friends can contribute freely but don’t get any tax deduction for doing so.
Employers can make contributions on behalf of an employee’s child using pre-tax dollars, and that money isn’t taxed to the employee. However, the cap is $2,500 per year per employee — not per child — according to enrolled agent David Mellem. That limit is set to adjust for inflation starting in 2027.
States, nonprofits, and philanthropists can also contribute, but only to a defined “qualified class” — for example, all children born in a particular year, or all children from households below a certain income level. Notably, business leaders including Michael Dell and Ray Dalio have pledged, through their foundations, one-time $250 contributions specifically targeted at children from middle- and lower-income households. As of now, at least 84 outside organizations — a mix of employers, foundations, and state governments — have committed to contributing, according to a list compiled by Americans for Tax Reform. An independent tool at TrumpAccounts.com, run by Saving For College, lets families check what outside contributions might already be available to them based on birth year, location, and employer.
The combined cap: contributions from family, friends, and employers together can’t exceed $5,000 per year, per account — a limit that will also adjust for inflation starting in 2027. Government and nonprofit contributions don’t count toward that $5,000 cap at all.
Where the Money Actually Goes: Investments
Trump Account contributions aren’t sitting in cash — they’re invested in low-cost, broadly diversified US stock index funds or ETFs, with a strict cap on fees: the expense ratio can’t exceed 0.10%, meaning no more than $1 a year in fees for every $1,000 invested.
The default investment across every account is currently the State Street SPDR Portfolio S&P 500 ETF (SPYM), which carries a notably low 0.02% expense ratio. Treasury has said that in the coming months, families will get a choice of four additional funds: the iShares Core S&P 500 ETF (IVV), Vanguard Total Stock Market ETF (VTI), State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM), and iShares Core S&P Total US Stock Market ETF (ITOT).
In an unusual twist, Treasury also announced it will accept large philanthropic donations made directly in publicly traded stock. SpaceX president Gwynne Shotwell, for example, announced she would donate SpaceX shares into more than 2 million children’s accounts. All accounts are held at Robinhood, the commission-free trading platform, with a joint Robinhood-and-BNY app available for families to track their child’s balance and investment performance.
What Happens to the Money at Age 18?
Once a child turns 18, the Trump Account effectively converts into a traditional IRA. That means normal IRA withdrawal rules kick in: pulling money out before age 59½ can trigger both regular income tax and a 10% early withdrawal penalty — unless the withdrawal falls under one of several exceptions:
- Higher education costs
- A first-time home purchase (up to $10,000)
- Birth or adoption expenses (up to $5,000 per child)
- An emergency expense (up to $1,000 per year)
- Certain qualifying medical expenses
How Withdrawals Get Taxed (It Depends on Who Contributed)
This is one of the more confusing parts of the program, because the tax treatment depends entirely on where the money originally came from.
Contributions made by individuals — parents, relatives, friends — were made with after-tax money, so when that money is eventually withdrawn, only the investment gains on top of those contributions are taxed as ordinary income at the child’s tax rate. The original contribution itself isn’t taxed again, since it was already taxed once going in.
Contributions made by employers, governments, or nonprofits work differently: because that money went in pre-tax, the entire amount — the original contribution plus any investment growth — is taxed as ordinary income when it’s eventually withdrawn.
Is a Trump Account Better Than a 529 Plan or Roth IRA?
There’s no single right answer here — it depends on what the money is actually for. As Robinhood puts it in its own account materials, the right choice depends on a family’s specific goals, tax situation, and timeline. If the money is mainly intended for college, a 529 plan may still make more sense, since withdrawals for qualified education expenses come out completely tax-free. If the goal is retirement savings, a Roth IRA may be the stronger option, since it also allows for tax-free withdrawals and carries a higher annual contribution limit than what most families will realistically be adding to a Trump Account.
Who Actually Benefits Most From This Program?
In the best-case scenario — a family that can consistently contribute, an employer that adds extra contributions on top, and strong stock market performance over the full 18-year growth period — a Trump Account could genuinely help offset future college costs or build a meaningful head start on adult savings.
But that best-case scenario assumes a family has money to spare in the first place, and critics argue that’s exactly where the program’s limitations show up. Madeline Brown, a senior policy associate at the Urban Institute, has raised doubts about how useful these accounts will be for lower-income families once the one-time $1,000 pilot payment ends, pointing out that roughly a third of families don’t even have $2,000 in emergency savings — a group unlikely to have spare income to contribute to a fund like this even if they wanted to.
There’s also real uncertainty about how these accounts might interact with other federal benefit programs. Elaine Maag, a senior fellow at the Urban Institute, has flagged open questions — such as whether withdrawing money at 18 could affect a young adult’s eligibility for a Pell Grant, or whether having funds in a Trump Account could affect a family’s SSI eligibility. Those questions don’t currently have clear answers, and further guidance from federal and state lawmakers will likely be needed before they do.
The Practical Takeaway for Parents Deciding Whether to Open One
If you’re on the fence, the decision mostly comes down to your family’s specific financial picture rather than a one-size-fits-all answer. If your child qualifies for the $1,000 starter contribution, there’s little downside to opening an account to claim that money, even if you can’t contribute much more beyond it. If you’re weighing a Trump Account against a 529 plan or Roth IRA as your main long-term savings vehicle, it’s worth mapping out what the money is actually intended for first — education, a first home, or general adult savings — since that answer will likely point you toward whichever account type actually suits your goal best, rather than assuming the newest option is automatically the best one.
Frequently Asked Questions
Do I have to contribute money for my child to have a Trump Account?
No. If your child qualifies for the $1,000 federal starter contribution, the account can hold and grow that money even if you never add anything further yourself.
Can I choose which fund my child’s money is invested in?
Currently, all contributions default to one S&P 500 index fund. Treasury has said four additional fund choices will become available in the coming months.
What happens if I withdraw money before my child turns 18?
Generally, withdrawals aren’t permitted before the year the child turns 18, since the account is designed to grow untouched through that “growth period.”
