In a move that could reshape how families plan for the future, the U.S. Treasury announced on Wednesday that parents and guardians will soon be able to open “Trump accounts” for their children.
What Are Trump Accounts?
Trump accounts are savings vehicles designed to grow over a child’s lifetime. They will be opened when the child is born and will hold money until the child turns 18, at which point the funds can be used for education, a first home, or a business. The accounts will be managed by private banks and brokerages and invested in mutual funds or exchange-traded funds that track the S&P 500 or other American-equity indices, according to the IRS.
How Contributions Are Made
Four types of contributions will fund the accounts. First, the federal government will provide seed money. Second, adults in the child’s life can donate. Third, wealthy Americans and philanthropic organizations may contribute. Fourth, state governments are also eligible to add funds.
Seed Funding and Philanthropic Donations
Children born between January 1 2025 and December 31 2028 automatically receive a one-time deposit of $1,000 from the Treasury. Children who are 10 or younger and do not qualify for the seed money can receive a one-time payment of $250, funded by a $6.25 billion donation from Michael and Susan Dell. The Dell donation is limited to children living in zip codes where the median household income is under $150,000.
Additional Contributions from Connecticut
Connecticut children who meet the same income criteria will receive an extra $250 from a donation by Ray and Barbara Dalio through Dalio Philanthropies. The Treasury press release estimates that about 300,000 children will qualify for these seed funds, totaling roughly $75 million. Treasury Secretary Scott Bessent announced a “50 State Challenge” to encourage similar philanthropic contributions in other states.
Contribution Limits and Caps
Family members, friends, and other individuals can contribute to a child’s account. The IRS allows an annual individual contribution cap of $5,000 and an employer contribution cap of $2,500 for an employee’s child. These caps will adjust each year based on inflation. Contributions from governmental entities and charities do not count toward the cap.
Growth Potential and Estimates
The Treasury said that if the S&P 500 continues its annual growth rate of 10.5%, the one-time $1,000 deposit could grow to roughly $600,000 by the time the child reaches retirement age. Treasury Secretary Scott Bessent also noted that, according to a Council of Economic Advisers analysis, the accounts could be worth more than $300,000 by the time a 2026 birth turns 18 if maximum annual contributions are made. By age 28, the account could exceed $1 million under a high-yield scenario.
No Contributions Scenario
If no contributions are made, the CEA estimates the account would be worth $5,800 when the child turns 18 and $18,100 a decade later. If $250 were deposited annually, the account could be worth $20,700 when the child reaches adulthood.
Timing of First Contributions
The first contribution to a Trump account cannot be made until after July 4. Parents who sign up in May will receive information on how to finish opening the accounts. Beginning in July, the White House will launch a website where parents can register for the accounts.
Withdrawal Rules and Tax Implications
Funds cannot be withdrawn until the child turns 18. The IRS explains that the “growth period” for the accounts ends on December 31 of the year before the child turns 18. After that date, the beneficiary can use the money for education, a first home, or a business. Similar to IRAs, an additional tax may apply to early distributions, but the IRS notes that exceptions exist for higher-education expenses or first-home purchases.
How to Open an Account
Parents who qualify must complete Form 4547. The Treasury’s new website, unveiled Wednesday, offers features to help users open and manage their child’s Trump account. The site will provide guidance on seed funding, contributions, and investment options.
Key Takeaways
- Trump accounts will be available to children born 2025-2028, with a $1,000 seed deposit from the Treasury.
- Philanthropic donations from the Dell and Dalio families provide additional $250 seed funds for qualifying children.
- Individual contributions are capped at $5,000 per year, while employer contributions are capped at $2,500.
The Treasury’s initiative aims to give children a robust financial foundation that grows with market performance and personal contributions. By combining seed money, philanthropic support, and family contributions, the program could create substantial wealth for the next generation.
