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Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Massachusetts is representative of a common question on Trump Accounts.
Trump accounts are a new type of quasi-IRA for children. The accounts promote saving and investing at an early age to provide long-term financial benefits throughout the individual’s life.
Trump Accounts can be established for children who are U.S. citizens (with a Social Security number) until the end of the year in which they turn age 17. Eligible children born between 2025 and 2028 will receive a one-time government-funded Trump Account contribution of $1,000 to initiate early investing.
Contributions to Trump Accounts are limited to $5,000 (1) per year and can be made through the end of the year in which the child turns age 17. This limit applies collectively to nondeductible contributions made by parents (or others) and to employer contributions (further limited to $2,500. (2) (Note: Additional guidance is anticipated on how this limit is applied. In addition, governments (state and local) and certain charitable organizations are permitted to make Trump account contributions up to any amount.
Trump accounts are invested in an ‘eligible investment’ until the first day of the year in which the child turns age 18. An eligible investment is an approved mutual fund or ETF that tracks qualified market indices like the S&P 500. An eligible investment cannot have annual fees/expenses that exceed 0.1 percent of the balance and must meet other criteria in Section 70204 of Public Law 119-21.
Trump Accounts are available for distribution on the first day of the year in which the child turns age 18. Distributions are taxable to the child (except the cost-basis for nondeductible contributions), and an IRS penalty may apply to distributions that are not used for a qualified purpose (like an IRA). The child may delay distributing the account and choose to let it grow, tax deferred.
| Trump Account | Details |
| Owner | Children under age 18 with a U.S. Social Security number. After age 18, the account becomes a traditional IRA. |
| Contribution Limit | Up to $5,000 per child per year (after-tax) by parents, relatives, or others—indexed starting in 2028. Employers may contribute up to $2,500 per employee, tax-free, counting toward $5,000 limit. |
| Who May Contribute | Individuals (parents, grandparents, family, etc.), employers (via written plan), and government or charities (nonprofits/state)—government or charity contributions do not count toward the $5,000 limit. |
| One-Time Incentive | A one-time, $1,000 federal government contribution for children born between 01/01/2025 and 12/31/2028. Does not count towards the $5,000 annual limit. |
| Investments | Low-cost U.S. stock index mutual funds or ETFs, with fees capped at 0.1%. |
| Distributions | No withdrawals before age 18, except for rollovers (another Trump Account or ABLE, in limited cases). After age 18, account operates like a traditional IRA. Early withdrawals (before age 59½) may incur a 10% penalty unless an IRA exception applies [IRC Sec 72(t)]. |
| Taxation | Individual contributions (e.g., by parents): After-tax—with tax-free return of principal at distribution. Employer, state/local government, or charitable contributions, and the federal $1,000: Taxed as ordinary income upon distribution. Earnings: Tax-deferred, taxed as ordinary income at withdrawal. Early withdrawals may trigger a 10% penalty unless there is an exception. |
Conclusion
New Trump Accounts may be appealing to many. Advisors should counsel clients to evaluate other tax-favored accounts, such as 529 plans or Roth arrangements, in conjunction with Trump Accounts. Based on individual circumstances, such as the availability of an employer contribution, the decision to utilize Trump Accounts is multi-faceted and requires careful analysis.
(1) Limits indexed for inflation after 2027
(2) Ibid.