How Trump accounts work – the complete mechanics
Trump Accounts represent one of the most significant changes to family tax planning in decades. These government-backed savings accounts are available for children born in 2025 or later, combining elements of traditional retirement accounts with unique rules designed to build long-term wealth for the next generation.
If you're wondering how to open a Trump account for your newborn or how these accounts actually function, this guide walks through the mechanics, contribution rules, and what parents need to know before getting started.
Understanding the basics
Trump Accounts are essentially individual retirement accounts for children, but with special rules that apply until the child turns 18. During this growth period, the account operates under unique restrictions designed to maximize long-term wealth building. The account belongs to the child legally, but parents or guardians control all investment decisions and account management.
Think of it as a locked savings vehicle where the key gets handed over when your child becomes an adult.
How to apply for the Trump baby account
Setting up a Trump account requires completing IRS Form 4547, which designates you as the responsible party. You'll need your child's Social Security number and date of birth, along with your own Social Security number and contact information. Once filed, a trustee will contact you to complete the account setup.
If your child is born between January 1, 2025, and December 31, 2028, and is a US citizen, the government will deposit a one-time $1,000 pilot program contribution to the account within 60 days. Keep in mind that contributions cannot be made before July 4, 2026.
The three life stages of a Trump Account
Stage 1: Birth to age 18 – the growth period
During this stage, strict investment rules apply, and no withdrawals are allowed except in cases of death or disability. The responsible party (typically a parent) makes all investment decisions within the permitted options. Special contribution rules let family members, friends, and even employers add money to the account up to annual limits. This is when the account builds its foundation, taking advantage of tax-deferred compounding over nearly two decades.
Stage 2: Age 18 – the transition
When your child turns 18, the Trump Account automatically converts to a traditional IRA. The young adult gains full control over the account, including the ability to change investments and make withdrawals. At this point, standard IRA rules take effect, meaning withdrawals become subject to income taxes and potentially early withdrawal penalties depending on how the money is used.
Stage 3: Age 18 and beyond – traditional IRA phase
Once the account becomes a traditional IRA, all withdrawals are subject to income taxes. However, there are no penalties for early withdrawals used for qualified education expenses, first-time home purchases, starting a business, or retirement. The account continues to grow tax-deferred until retirement, when required minimum distributions begin. This structure means money put in during childhood can compound for 40, 50, or even 60 years before being fully withdrawn.
Who controls the account?
The child owns the account, but you control it. The account is established in the child's name and Social Security number, making them the legal owner. The responsible party (the person who filed Form 4547) controls all investment decisions and account management until the child turns 18. This responsible party can also name a successor to take over if they die or become incapacitated.
The designation of a successor will be facilitated through the chosen financial custodian or the official trumpaccounts.gov platform. This structure protects the child's ownership while ensuring that mature adults make investment decisions during childhood.
Contribution rules: who can give and how much
Total contributions from all sources (except government and charity) are capped at $5,000 per year per child. This limit includes parent contributions, grandparent contributions, other family or friend contributions, and employer contributions up to $2,500. The $5,000 limit will be adjusted for inflation in $100 increments starting in 2028. This is a hard cap – you cannot contribute more even if you're willing to pay gift tax.
Breaking down the contribution sources
Contributions to a child's Trump Account can come from different sources, each with its own rules and tax considerations. Knowing how each type works can help you make the most of the account while staying within legal limits.
1. Individual contributions (parents, grandparents, friends)
Anyone can give money to a child's Trump Account. The combined total from all individuals cannot exceed $5,000 per year. These contributions are made with after-tax dollars, which means you don't get a tax deduction for putting money in. The contribution creates tax basis in the account, meaning this money won't be taxed again when it's eventually withdrawn.
Keep in mind that if your total gifts to a child (including Trump Account contributions plus other gifts like money for a 529 plan) exceed $19,000 in a year, the excess may count toward your lifetime gift tax exclusion.
2. Employer contributions
Employers can contribute to Trump Accounts of their employees (if the employee is under 18) or to accounts of employees' dependents. Employers can contribute up to $2,500 per employee per year, not per child. If you have three kids, your employer can contribute a total of $2,500 to be split among all three children, not $2,500 to each child. For the employer, these contributions are a tax-deductible business expense. For the employee, employer contributions are excluded from taxable income and don't create tax basis, meaning they'll be fully taxable when withdrawn. Employer contributions count toward the $5,000 annual limit.
3. Qualified rollover contributions
You can transfer an entire Trump Account from one financial institution to another through a qualified rollover. These transfers are unlimited and don't count toward the $5,000 annual cap. The transfer must be trustee-to-trustee (meaning you can't withdraw the money yourself and deposit it elsewhere), must transfer the entire balance, and can only happen during the growth period before age 18. Only one Trump Account per child can be funded at any time, so rollovers are the mechanism for switching custodians if you're unhappy with fees or service.
When contributions must be made
All contributions must be made by December 31 of each year. Unlike traditional IRAs where you can contribute until the tax filing deadline (April 15 of the following year), Trump Account contributions follow a strict calendar-year cutoff. A contribution made on January 1, 2027, counts for 2027, not 2026. This means you need to plan ahead and make contributions before the year ends if you want them to count for that tax year.
Investment rules during the growth period
During the growth period (birth to age 18), Trump Accounts face significant investment limitations designed to ensure simple, low-cost, diversified exposure to American equities. The goal is to prevent speculation while keeping costs minimal and ensuring every child's account benefits from broad market growth.
What you can invest in
Eligible investments are limited to mutual funds and exchange-traded funds that track a broad US stock market index (like the S&P 500 or Total Market Index), are composed primarily of US company stocks, have exchange-traded regulated futures contracts, and charge 0.10% (10 basis points) or less in annual fees. Examples of likely eligible investments include Vanguard S&P 500 Index Fund (VOO), SPDR S&P 500 ETF (SPY), Vanguard Total Stock Market (VTI), and Schwab US Broad Market ETF (SCHB).
These restrictions keep costs ultra-low (the 0.10% cap is cheaper than 70% of index funds), ensure diversification through broad market indexes, prevent speculation by excluding individual stocks or cryptocurrency, simplify choices by limiting options, and align incentives since everyone is invested in America's economic growth.
The downside: no diversification
These accounts are 100% stocks, which means high volatility. During market downturns, these accounts will lose significant value. However, over 18 years or more, historical data shows US stocks have averaged 10% annual returns despite short-term volatility. You cannot reduce risk with bonds or international diversification until the child turns 18 and converts the account to a traditional IRA.
Account management: what you can and cannot do
As the responsible party, you have significant control over the account, but that control comes with clear boundaries. Understanding what you can and cannot do helps avoid mistakes that could trigger penalties or violate the account rules.
What you can do
- Control investment selection within eligible options
- Change investments (rebalancing or switching funds)
- Transfer to a different financial institution through a rollover
- Name a successor responsible party
- Receive account statements and tax documents
- Monitor account growth
What you cannot do
- Withdraw money for any reason except death or ABLE rollover at age 17
- Borrow against the account
- Use the account as collateral for a loan
- Change the beneficiary (it's permanently the child's account)
- Merge it with another child's account
- Invest in assets outside the eligible options
Special circumstances: death and disability
While Trump Accounts are designed to remain untouched until age 18, the law recognizes two exceptional situations where different rules apply.
Death of the child
If the child dies before age 18, the account can be distributed to the child's estate or designated beneficiaries. This is the only permitted withdrawal during the growth period outside of the ABLE rollover option.
ABLE account rollover
For children with disabilities, during the calendar year the child turns 17, the entire Trump Account can be rolled over to an ABLE account. ABLE accounts are tax-advantaged savings vehicles for people with disabilities that allow for more flexible withdrawals for qualified disability expenses.
How Trump Accounts grow
Tax-deferred compounding is the main advantage here. During the growth period, you pay no taxes on dividends or capital gains, which means every dollar of growth stays in the account and keeps compounding. If you contribute $5,000 annually for 18 years and earn an average 10% return, the account could grow to over $250,000 by the time your child turns 18. In a taxable account, annual taxes would shave off a significant portion of that growth.
Reporting and statements
Trump Account custodians handle most of the paperwork, but you'll receive a few key documents each year to track contributions and confirm compliance with the fee requirements.
What you'll receive annually
You'll receive account statements showing balance, contributions, and investment performance. The custodian will send IRS Form 5498-SA (or similar) reporting contributions to the IRS. You'll also receive annual fee disclosures confirming expense ratios remain under 0.10%.
What you must report
Generally, nothing during the growth period. The custodian handles IRS reporting. If contributions exceed $5,000 from non-exempt sources, you may need to return excess contributions to avoid excise taxes.
Common questions about how Trump Accounts work
No. The $5,000 limit is per calendar year, not per 365 days.
The account has received excess contributions. The custodian should return the excess to avoid penalties.
Yes, as long as both are eligible investments.
The custodian must notify you and help you switch to a compliant fund.
Only if grandparents are legal guardians; otherwise, parents have priority.
Yes, the current responsible party can name a new one, or it may change automatically upon death or incapacity.
The account continues to exist, but tax treatment may become complex. Consult an international tax advisor.
No, it's not taxable income when deposited.
No. The $5,000 limit is absolute (except for government and charity contributions).
Children born in 2025 or later are eligible. Trump accounts for kids born before 2025 are not available under the current program rules.
Individual contributions are not tax-deductible. Only employer contributions are tax-deductible for the business making the contribution.
