Breaking down the OBBBA: Trump Accounts

The One Big Beautiful Bill Act (OBBBA) introduced a first-of-its-kind savings vehicle aimed at furthering how families build long-term wealth for their children. The Section 530A “Trump Account” is meant to give all eligible American children a financial foundation by age 18. To incentivize participation, the federal government will automatically contribute $1,000 to accounts created for children born between 2025 and 2028, paid by the IRS as a refundable, non-taxable credit.

This article will explain the mechanics of Trump Accounts, including eligibility, setup, contribution rules, investment restrictions, and transition into a traditional IRA when the beneficiary turns 18. It also covers the government’s pilot program, and practical considerations for families when deciding on participation.

Initial guidance on establishing Trump Accounts

Following the Trump Account program’s launch, the IRS issued Notice 2025-68 on December 2, 2025. This offered initial guidance on how to set up a Trump Account during the 2026 filing season, which began on January 26, 2026. It clarified who can open an account, how to request the $1,000 pilot contribution, and what documentation is required.

Only an authorized individual can create a Trump Account, and the priority order is strict: legal guardian, parent, adult sibling, then grandparent. The creator must file Form 4547 – either alone or with their 2025 tax return – to open the account and request the $1,000 distribution for an eligible child born between 2025 and 2028. Form 4547 can be filed electronically with the tax return, mailed with a paper return, or mailed separately. An online portal-style application at trumpaccounts.gov is planned but not yet operational.

To qualify for a Trump Account, the child must have a valid Social Security Number, must not have a Trump Account already in their name, and must be under age 18 by the end of the year the election is made. There is uncertainty about the rollout’s specifics, but the current expectation is that it will begin in May 2026 for the earliest filers who meet these requirements. The authorized individual listed on Form 4547 will be considered the account’s trustee, responsible for managing investments, making deposits, and fulfilling reporting obligations. 

Eligible investments during growth period

Once the Trump Account is created, it enters the “growth period”: the time from creation until December 31 of the year before the beneficiary turns 18. Investments are limited to low-fee, non-leveraged mutual funds or ETFs tracking broad U.S. equity indexes during this time. 

No distributions are allowed during this period except for certain rollovers, excess contributions, or upon the beneficiary’s death or disability. Trustees will be subject to special reporting requirements. Earnings will grow tax-deferred, like traditional IRAs.  

Contributions rules and limits

Contributions may begin on July 4, 2026. There are five allowable types:

1. $1,000 government pilot program contribution for eligible children born after December 31, 2024, and before January 1, 2029
2. Qualified general contributions from government entities or 501(c)(3) organizations
3. Employer contributions, up to $2,500 per year, indexed for inflation after 2027
4. Qualified rollover contributions from another Trump Account for the same beneficiary
5. Other contributions from family, friends, or the beneficiary

The annual contribution limit is $5,000, indexed for inflation after 2027. Employer contributions count toward this limit, but pilot contributions, qualified general contributions, and rollovers do not. All contributions must be made by December 31 of the applicable calendar year, unlike traditional IRAs with an April 15 extension.

Individual contributions to Trump Accounts are not tax-deductible so they must be made with after-tax dollars. Although they are IRA accounts, the beneficiary does not need to have earned income for contributions to be made on their behalf. 

Employers can decide to establish a Trump Account Contribution Plan (TACP) if it meets certain nondiscrimination requirements, like not favoring highly compensated employees. Employer contributions are considered non-taxable fringe benefits and are deductible by the employer. An employer cannot contribute more than $2,500 in total per employee, regardless of the number of children the employee has. There are forthcoming proposed regulations for the creation and operations of TACPs.

Tracking basis will be critical. Only contributions made by family and other individuals will create basis. The $1,000 government contribution, employer contributions, and payments from other government or charitable organizations do not create basis and will be fully taxable upon distribution.

How Trump Accounts operate after age 18

On January 1 of the year the beneficiary turns 18, the Trump Account transitions out of its restricted “growth period” and into a traditional IRA, governed by Section 408 of the Internal Revenue Code. 

Tax treatment of distributions (same rules as traditional IRAs):

• Distribution taxation:
  • Distributions are taxed as ordinary income.
  • The portion of any distribution that represents the account’s basis – after-tax contributions made by any party – can be withdrawn tax-free.
  • Employer contributions, the $1,000 government seed contribution, and qualified general (e.g., philanthropic) contributions do not create basis and are fully taxable as ordinary income.
• Early withdrawal penalty:
  • If the beneficiary withdraws funds before age 59½, the taxable portion of the distribution is subject to a 10% early withdrawal penalty unless the distribution is exception-qualifying. Exceptions include but are not limited to higher education expenses or a first-time home purchase.
• Required minimum distributions (RMDs):
  • Once the account holder reaches the applicable RMD age (currently age 75 for individuals born after 1959), distributions must begin.
• Reporting obligations:
  • Distributions must be reported on the beneficiary’s tax return. Basis and contribution sources need to be tracked carefully to calculate the taxable and non-taxable portions of each withdrawal.

Conclusion

Trump Accounts represent a shift toward investing earlier for the next generation. As guidance and implementation evolves, families, employers and financial advisors should consider how these accounts fit into existing plans and strategies.

A Trump Account is a strong fit for newborns or beneficiaries who are eligible for employer or general contributions. It is strongly advisable for families with children born between 2025 and 2028, due to the automatic $1,000 government pilot program contribution. If family members want to create a savings plan for those bigger expenses later in life, such as a first-time home purchase or a child’s education, this may be worth considering. Also consider that, even though a distribution will be partly taxed, young adults are typically in a lower tax bracket. This account can complement or replace other options, especially for younger children with no earned income.

A 529 plan is a stronger educational expense-saving vehicle since it is not limited to an annual contribution amount. 529 accounts grow tax-free, and distributions are not taxable if used for qualified educational expenses. This contrasts with the Trump Account’s tax-deferral growth, which is taxable when distributed. Under the SECURE 2.0 Act of 2022, 529 plan funds are also eligible for non-taxable rollovers to Roth IRAs (up to a lifetime maximum of $35,000 per beneficiary, subject to certain requirements). Trump Accounts can be converted to Roth IRAs after age 18 but the earnings will be taxable when converted.

For older children who have earned income, Roth IRA contributions made by parents or grandparents on a child’s behalf are more advantageous than contributing to a Trump Account. They also offer the flexibility of allowing tax-free and penalty-free contribution withdrawals prior to age 18, although this is not advisable from a long-term wealth-building standpoint. Withdrawal of Roth earnings before age 59 1/2 may incur taxes and penalties.

Our Sikich tax and wealth advisors are monitoring the status of proposed regulations for Trump Accounts. We are available to help you review options and make the best plan for you and your family.

More OBBBA analysis can be found on our OBBBA resource hub.

About our Authors

Laura Culp, CPA, PSF, MT is an investment adviser representative of a SEC-registered investment adviser, Sikich Financial. She is also a tax director with over 35 years of experience working with owners of privately held businesses to help them grow their wealth and implement tax saving strategies. Laura’s planning and wealth management skills provide business owners and individuals with an integrated level of service, and clients appreciate her down-to-earth advice.

Joseph Chadbourne, CPA is a member of the Sikich tax department who specializes in tax research, and preparation of business and trust tax returns. He is also skilled at addressing and resolving tax notices. 

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries.