“Trump Accounts”
A part of the One Big Beautiful Bill, or OBBB, allows the creation of savings accounts for newborns, born between Jan 1, 2025 and Dec 31, 2028. Our youngest son and his wife are expecting their second girl later this year, so as grandparents we are interested in helping set up and contributing to this account, but there is some bits of info I’m not able to find and so wondering if you might have some insight.
Can this savings account be set up with any IRA custodian?
The first $1,000 contribution will come from the federal government. But the next $5,000 per year contribution can come from family or even friends. Does this $5,000 have to be earned income or can it be from any source?
The Contribution will be after tax and so is not deductible, thus at age 18 when it becomes an IRA, I’d assume all the past contributions made to it will be after tax although all earnings will be pretax. Does this require filing an 8606 each year contributions are made? If so, who files it…..the parents as guardians for the child?
The conditions I’ve read say withdrawals may not be made until the child is 18. Does this mean no withdrawals under any conditions until then?
If withdrawals are made at 18 and after, will the withdrawal be prorated as is the case with TIRAs or will it be basis first as with a Roth IRA?
On a personal note, I think this is a great idea, to get young persons involved at a young age so they can gradually learn the magic of compounding and the longer term rewards of leaving the savings in the account and watching them grow.
Permalink Submitted by Alan - IRA critic on Wed, 2025-07-30 17:35
Bruce, I have not yet given any attention to these accounts because the IRS will probably not get around to providing guidance for awhile.
That said, there will be no earned income requirement for anyone to make contributions and obviously not for the child. But if an older child does have a job, they can make an IRA contribution which is totally independent from Trump accounts. I assume that some firms will offer these accounts, and some will not, so it will take time for custodians to surface.
Sounds like there can be only one Trump Account per child, so it’s possible that the govt will open one to fund the $1000 contribution (which does not count toward the 5000 limit), and if the parents choose another provider, the funds in the govt opened account will have to be transferred to a new account that can receive the annual contributions from relatives.
All we know now are that these accounts will have basis and pre tax balances, and there can be no distributions prior to age 18 except due to death, so there is plenty of time for the IRS to determine if Form 8606 will be adapted to determine the taxable amount of such distributions, which might pro rate the basis, or possibly use a Roth model with basis coming out last. Apparently, these accounts will not be aggregated with IRAs, therefore any basis will be entirely separate from IRA basis. Eventual RMDs? Not known.
Apparently, like an UTMA account, the child will gain full access at 18, but before 18 there can be no distributions, so I don’t know if this will teach the child discipline or not. It is also not clear whether the Trump account can be rolled to an actual IRA or converted to a Roth IRA at 18.
Certainly, there is plenty that the IRS will have to clarify. Hope it comes faster than the Secure Act regs did.
Permalink Submitted by BruceM on Thu, 2025-07-31 12:03
Thanks Alan. We’ll just have to wait for regs to be published on these and I’m sure many other questions….but they’re going to have to hurry as there are only 5 months left in 2025, the first year contributions can be made for those born this year.
Permalink Submitted by Alan - IRA critic on Thu, 2025-07-31 16:06
It looks like other than the 1000 govt contribution, no other contributions can be made to the Trump account prior to 7/4/2026. Therefore a 2025 contribution will probably not be allowed unless there is some special provision provided.
Lots of unclear issues need to be clarified.