A new type of savings account for US children is set to launch in America in 2026, and it’s already causing confusion among parents, planners, and tax experts alike. Nicknamed Trump accounts after the president who signed them into law, these custodial IRAs are part of the “One Big Beautiful Bill Act” and aim to give newborns a financial leg up with a $1,000 contribution from the federal government. But while the offer may sound attractive, the structure of these accounts is highly complex—and not every family will benefit equally, the Wal Street Journal reported.
Who is eligible and what do the accounts offer?
Under the pilot programme, children born between January 1, 2025, and December 31, 2028, who are US citizens and have a Social Security number, will be eligible for the $1,000 seed grant from the Treasury Department. Parents don’t need to apply for the funds directly—the accounts will be automatically set up through participating financial institutions beginning in July 2026.
In addition to the government contribution, the accounts allow annual contributions of up to $5,000 from parents, relatives, or friends. Employers may also contribute up to $2,500 annually per eligible child or dependent, and charities can fund the accounts if they apply the same conditions to a whole cohort—such as all children in a ZIP code or birth year.
The programme is projected to cost the government around $15 billion by 2034.
What can you invest in?
Investments in Trump accounts are limited to low-cost US equity-based mutual funds or ETFs with an expense ratio below 0.1%. This restriction is designed to protect the funds from excessive fees, but it also limits flexibility. Sector-specific funds, international stocks, and other higher-risk/higher-return instruments are not permitted.
For those with long time horizons—like newborns—the investment potential of a tax-deferred account in the stock market is substantial. However, that benefit comes with a lot of red tape.
Withdrawal rules: Taxes and penalties apply
While funds grow tax-deferred, withdrawals are where things get complicated. If the account holder makes a withdrawal before age 59½, it may be subject to both income tax and a 10% penalty—unless it's for qualifying expenses like higher education or a first-time home purchase (up to $10,000).
To make matters more confusing, distributions are proportionally taxable. So if a child receives the $1,000 seed, $10,000 in after-tax contributions from parents, and $4,000 in investment gains, any withdrawal is considered to be one-third taxable. There’s no way to withdraw just the parent’s contribution tax-free, unlike Roth IRAs.
Even if the beneficiary waits until they turn 18, they will owe taxes on the $1,000 seed money and any gains. Using the money for a non-qualified expense—like buying a car—before age 59½ means paying tax and a 10% penalty.
Does it make financial sense?
Financial advisers are divided. For most families, experts say it’s worth taking the free $1,000 but not adding more to the account. If you’re saving for college, a 529 plan remains the best tax-advantaged tool, allowing tax-free withdrawals for education expenses. For older children with earned income, a custodial Roth IRA provides more flexibility and tax-free growth.
For high-income families who have already maxed out other options, the Trump account could be a way to jump-start retirement savings for a child—especially if converted into a Roth IRA at age 18. But that only works if the account is left untouched for decades, something that may be unrealistic for most 18-year-olds.
Final takeaway
The Trump account represents a bold attempt to create long-term financial security for American children. But the complexity of the tax treatment, rigid investment options, and limited short-term utility make it far from ideal for average families. Before contributing anything beyond the government’s seed money, parents should compare it carefully with 529 plans, Roth IRAs, and even standard custodial brokerage accounts.
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