As part of President Donald Trump's One Big Beautiful Bill, families with children under 8 will receive another way to invest in the stock market: Through Trump Accounts.
How it would work is that the Department of the Treasury will deposit $1,000 in a tax-preferred investment account for every baby born between January 1, 2025 and December 31, 2028.
To qualify for this incentive, your child needs to be a U.S. Citizen and parents should have Social Security Numbers, according to CNBC. Here's further breakdown of how the program works and how it compares to other options like 529 plans.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Trump Accounts: How they work
The goal of these accounts is, once opened, to track a stock index, per Time. It means unlike 529 plans or Coverdell Education Savings Accounts, Trump Accounts don't allow you to choose your investments.
Meanwhile, families will have the option of contributing up to $5,000 of their post tax dollars annually to build the fund. You can make contributions until your child reaches 18.
At 18, your child would be eligible to withdraw half of the funds in their Trump Account. Eligible withdrawals at this age include higher education expenses or credentials. At 25, they would have access to withdraw all funds in their account for eligible educational expenses or to start a business.
At 30, purposes for withdrawal diversify. They could use it for higher education, a down payment on a home or certain expenses to start a business.
How to open Trump Accounts
The One Big Beautiful Bill still must pass the Senate before Trump can sign off on it. Senate Republicans aim to have votes conducted this week.
Until that happens, there won't be money allocated for Trump Accounts. If the Senate is able to pass it and Trump signs off on it, the Treasury can open an account automatically for you, as long as you and your child meet eligibility requirements.
Trump Account: Tax implications
When opening a college savings account for your child or grandchild, finding one that offers you some tax incentives is paramount to growing your earnings while not being left on the hook with a higher tax debt after withdrawals.
This is one area where Trump Accounts fail. First, any contributions you make to the plan are not tax deductible. 529 plans work the same way on the federal level, but many states do offer tax credits you can use on your state return.
Next, any distributions made from Trump Accounts for qualified expenses fall under the long-term capital gains rate. If you withdraw money for any other purpose, the government taxes it as ordinary income with an additional 10% penalty.
And states can also tax those distributions. So, on top of having to pay federal tax on distributions, which is something you wouldn't have to worry about with qualified withdrawals under 529 plans, you would also have to pay state taxes, where applicable.
Trump Accounts vs other college savings
One of the best ways to determine if a Trump Account is the right approach for your family is to compare it to other options:
Accounts | Max annual contribution | Federal tax credit eligible for contributions | State tax credit eligible for contributions | Taxes on withdrawls | Choose your investments |
|---|---|---|---|---|---|
Trump Accounts | $5,000 | No | No | Long-term capital gains tax | No |
529 plans | $19,000 for single filers, $38,000 for married | No | Yes | Federal, state tax exempt for qualified expenses | Yes |
Coverdell Education Savings Account | $2,000 | No | Yes, some states offer tax credits | Federal, state tax exempt for qualified expenses | Yes |
As you can see Trump Accounts come with strings attached. Not only can you not choose your investments, like you can with other college savings options, your disbursements are subject to federal and state tax.
Trump Accounts: Pros and cons
Here are some pros and cons to consider:
Pros:
- $1,000 to fund your child's future
- Contribute up to $5,000 annually
- Your child can use funds for college, to start a business or make a down payment on a home
- The Milken Institute estimates $1,000 invested in a broad-based equity index fund of U.S. companies would earn $8,000 in 20 years
Cons:
- You can't choose your investment options
- Withdrawals are taxed on the federal and state level
- Limited options for disbursement without additional 10% tax penalty
- These accounts are overly complicated and can be difficult for families to understand how they work
- This program could cost more than $3 billion annually, per Time
The bottom line
President Donald Trump's One Big Beautiful Bill includes a provision for helping families kickstart their babies' financial future through Trump Accounts.
If passed by the Senate, the Treasury will open accounts for eligible children and deposit $1,000. Families can make up to $5,000 in annual contributions, which your children can use for educational expenses starting at 18.
Is it the best option available? No. 529 plans offer more flexibility in investment options, you'll have higher annual contribution limits and eligible withdrawals are exempt from federal taxes, whereas, with Trump accounts, you'll be on the hook for federal and state taxes even if your child withdraws money for a qualified expense.
Related content
-
‘I Play Pickleball in Retirement.’ Is It HSA-Eligible?Retirement Tax Staying active after you retire may be easier with these HSA expenses. But there’s a big catch.
-
What New Tariffs Mean for Car ShoppersThe Kiplinger Letter Car deals are growing scarcer. Meanwhile, tax credits for EVs are on the way out, but tax breaks for car loans are coming.
-
Integrity, Generosity and Wealth: A Faith-Based Approach to BusinessEntrepreneurs who align their business and financial decisions with the biblical principles of integrity, generosity and helping others can realize impactful and fulfilling success.
-
My First $1 Million: Retired Tech Industry Director, 78, Delaware County, OhioEver wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
The Country Club Arms Race Adds Perks (And Fees) Beyond Golf. Is It Worth the Expense?As golf has grown in popularity, country clubs are upgrading with amenities for the whole family. Find out what's new and what's worth the cost of memberships.
-
Are You Jeopardizing Your Future to Help Your Adult Kids? An Expert Guide for How to Not Do ThatIf your adult child needs financial help, of course you want to provide it, but crafting a plan that also protects your financial and emotional well-being is vital.
-
The Anti-Prime Day Deals Guide to Everyday Essentials Worth Stocking Up on at Walmart, Target and Sam's ClubSkip Amazon and shop these anti-Prime Day deals at Walmart, Target or Sam's Club to save on all of your household essentials.
-
Amtrak Joins Prime Day With Deals on Fares — But You’ll Have to Act FastPrime members can score 20% off midweek fares — what travelers should know before booking.
-
Florida Revives Popular Home-Hardening Program With $280M in New FundingA major infusion of state funds revives Florida's flagship home-hardening grant program to protect homeowners and potentially lower insurance costs.
-
TSA Expands Precheck Benefits for Military, Gold Star Families and VeteransEnhanced "Serve with Honor, Travel with Ease" initiative lowers barriers to expedited screening for service members and their loved ones.
