When the One Big Beautiful Bill was signed into law on July 4, it created a new account for children. The so-called “Trump account” provides a one-time $1,000 deposit from the government at birth and gives parents and relatives the chance to make additional contributions each year.
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The Treasury Department has now claimed that the accounts could grow to $1.9 million over 28 years — although to reach that goal, parents would need to invest quite a bit of additional money, beyond that initial $1,000 seed contribution.
Here’s what you need to know about these accounts, how they work, how much they could grow and how they compare to other popular investment options parents can leverage for their children.
How the new Trump accounts work
The One Big Beautiful Bill allows parents to open Trump accounts at any bank of their choosing for children born after December 31, 2024 and before January 1, 2029 and the government will provide the initial $1,000 investment. However, the child must be a U.S. citizen with a Social Security number.
Of course, parents can still open Trump accounts for children born at other times, but anyone born outside this period won’t qualify for the $1,000 seed money.
The money can then be put into an eligible investment such as a mutual fund or ETF that tracks a financial index like the S&P 500. The investment can’t have fees or expenses above 0.1% and it must include equity investments primarily consisting of U.S. companies.
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Parents are allowed to contribute up to $5,000 per year to these accounts, while their employers are allowed to invest up to $2,500 (just note that the $2,500 employer contribution counts towards the $5,000 annual limit). This amount is adjusted for inflation. While employer contributions are not taxed, parent contributions aren’t tax-deductible.
The invested funds will grow tax-free until the money is withdrawn, with children having the option to take out the money once they reach the age of 18. At that time, a withdrawal triggers a tax event and is treated like an IRA for tax purposes.
As the Tax Foundation and AEI explain, this means:
- Withdrawals will be taxed at ordinary income tax rates
- Withdrawals are subject to a 10% penalty unless made after 59½ or used for a qualifying purpose, such as covering college costs or going towards a home
The goal is for children to benefit from compound growth and, as the Treasury Department explains, the accounts could potentially be worth as much as $1.9 million by age 28.
However, that would require parents to max out the accounts, or invest the maximum every year until the child’s 17th birthday (which starts at $5,000 per year and which will be adjusted up for inflation).
If there are no additional contributions, however, even the initial $1,000 could turn into between $3,000 and $13,800 over 18 years, according to the Treasury, with the amount dependent on how the account ultimately performs.
Are these accounts a good value?
The Trump account is just one of several tax-advantaged accounts parents can set up for their children and many financial experts don’t believe it is the best one.
A Roth IRA can be a better option if the child has ordinary income to contribute to it, because Roth IRAs allow tax-free withdrawals after 59 ½ as well as withdrawals of contributions any time — penalty-free.
A 529 account could also be a better choice, because money can be withdrawn tax-free if it is used for qualifying educational expenses. And even a Uniform Transfers to Minors Account (UTMA) could be preferable because it allows for penalty-free withdrawals for any reason or transferred to other accounts; plus, investment gains can be taxed at the more favorable capital gains tax rate.
"Trump accounts provide a more limited and restricted tax benefit than existing saving incentives, such as 529 accounts," the Tax Foundation reports.
Most parents are not maxing out these existing accounts, which provide more advantages, so it is unlikely that they’ll be setting aside a full $5,000 into the Trump account either. Still, the $1,000 is there for babies born during the eligible years. So, if nothing else, parents should open the account to claim those funds and leave them to grow — extra cash from Uncle Sam is still extra cash.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.