Saving for a child’s future is an important part of every parent’s financial plan, but for many, the task can be daunting.
According to a recent LendingTree study*, raising a child to adulthood costs around $300,000. This total excludes college costs, job training, or future expenses your kid might need.
That’s where Trump Accounts (formerly “MAGA Accounts”) enter the fray.
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.
Introduced in the “One Big Beautiful Bill” (OBBB), so-called "Trump Accounts" will allow parents, relatives, and others to contribute up to $5,000 annually for a child’s future educational, homeownership, and entrepreneurial expenses.
The federal government will also seed this tax-advantaged account with $1,000.
The savings then grow “exempt from taxation” (more on that below) until the child reaches 18. At that point, there could be tens of thousands of invested dollars for your child’s use.
Sen. Ted Cruz (R-Texas), who proposed the savings account initiative, told Semafor, “There are many Americans who don’t own stocks or bonds, are not invested in the market, and may not feel particularly invested in the American free enterprise system. [Trump accounts] will give everyone a stake.”
If the savings account idea sounds familiar, that’s because it is. Democrats have proposed so-called "baby bonds" in the past, which would also offer $1,000 seed money to eligible children, but failed to gain bipartisan support.
How is a "Trump savings account" any different? And should you open one now that this tax provision is law?
Read on.
*Note: LendingTree researchers used various data sources, incorporating multiple expenses related to rent, food, health insurance, etc., to calculate the cost of raising a child in a two-income household.
Related: Money for Your Kids? Three Key Ways Trump's ‘Big Beautiful Bill’ Impacts Your Child's Finances.
‘Trump Account’ could put $1,000 in every newborn’s name
Under the "Trump tax bill," the GOP wants to create Trump Accounts for kids under eight.
Overseen by the Department of the Treasury, these savings accounts are touted by supporters as a new way to help pay for higher education, homeownership, and any entrepreneurship expenses that account holders might incur.
Supporters say eligible children can have an account opened for them as early as July 2026.
Generally speaking, parents will open the account through a bank or other financial institution, though others may open your child’s account for you (more on that below).
Trump savings account for kids eligibility
To be eligible for the proposed “Trump Account,” qualifying children will need to be:
- Under 18 years old,
- U.S. citizen or resident,
- Have a Social Security number (SSN) with at least one parent with a valid SSN.
How to contribute to a 'Big Beautiful Bill' child savings account
Several individuals may contribute to a child’s savings in the new Trump account tax provision, including:
- Parents
- The child’s other relatives
- Governmental and taxable entities
Following a roundtable event held at the White House on June 9, several tech companies may be on board with the Trump Accounts.
CNBC reports that executives from Dell, Uber, and Goldman Sachs, to name a few, attended the Trump administration's "Invest America Roundtable."
While several companies reportedly expressed support for the newborn investment program, Dell pledged a $1,000 match for its employees' children into Trump Accounts under the new tax provision.
Employer contributions will cap at $2,500 into Trump Accounts, yet parents and relatives will be able to contribute up to $5,000 of after-tax dollars annually. However, there is a catch: Contributions can't be made into a Trump savings account after the child reaches 18.
Trump account distributions for qualified expenses
Certain rules will govern account distributions depending on the account holder’s age and whether an expense is "qualified" or not:
- No distributions will be allowed until the child reaches 18.
- After that age, the account is treated akin to an individual retirement account (IRA).
- Withdrawals may be made for higher education, small business expenses, and first-time home purchases (up to $10,000), per the Tax Foundation.
- Withdrawals may also be used for specific situations, like natural diaster-related costs (up to $22,000) or expenses related to the birth or adoption of a child (up to $5,000), according to the American Enterprise Institute.
- Other withdrawals will be subject to a 10% early distribution penalty (until the beneficiary of the Trump account reaches age 59 1/2).
Contributions from parents are not taxed when withdrawn.
However, distributions from employers may be treated a little differently. These withdrawals, if taken for “qualified purposes,” might be taxed as long-term capital gains, which is generally a much lower tax rate than ordinary income.
But if the distributions are not “qualified,” they might be taxed at the ordinary federal income tax bracket instead. In some cases, a 10% early withdrawal penalty may also be applicable.
Would Trump savings accounts for children get taxed?
Contributions to a Trump Account are taxable. But withdrawal taxation may depend on the source and type of income.
For instance, distributions for qualified expenses from employers might be taxed at the long-term capital gains tax rate of 14% to 20%.
But distributions for qualified expenses from parents are not taxable.
However, each account will also accrue interest, since it will be invested in an U.S. equity index fund. This means all interest income will grow tax-deferred and will be taxed when taken out.
Yet it's important to note that further guidance from the IRS on the taxability of these accounts is needed before implementation next year.
Trump Account program: Is it worth it?
Under the Trump account pilot program, each U.S. citizen born from January 1, 2025, to December 31, 2028, will be eligible to receive $1,000 in their Trump Account.
Because account holders will start with seed money from the federal government, the pilot program will have stricter eligibility requirements:
- Both parents will have to have a valid Social Security number (SSN) that is work-eligible.
- For newborns, only parents or guardians can open a Trump account for their child.
But you might not need to worry about opening a Trump Account, as the federal government could open one for you.
The tax bill states: “If the Secretary of the Treasury determines that an eligible individual does not have an account opened for them. ... The Secretary shall establish an account on the child’s behalf.”
Although parents might opt out of the account after the fact, some problems could arise from opening millions of accounts on behalf of newborns.
The GOP tax bill includes a provision for a kids' savings account known as a "Trump account."
What’s wrong with the Trump Account proposal?
In an interview with CNBC, Cruz remarked, “[A Trump account] is essentially a 401(k) for every newborn in America, and just like with 401(k)s, employers have seen it as a very attractive benefit for their employees to match or help seed those savings accounts.”
But placing $1,000 into 3 million accounts annually without definitive participation from participants could be problematic.
Take, for example, retirement savings accounts. According to USA TODAY, about 25% of 401(k) accounts are forgotten, amounting to $1.65 trillion in unclaimed assets across the U.S. Although retirement accounts and Trump savings accounts could be seen as similar, a big difference is how they’re funded.
Trump pilot program accounts will be initially funded with $1,000 federal seed money. That will most likely come from taxpayer dollars. If the funds aren’t used, that might amount to millions in tax dollars sitting idle as other areas of the federal government are strapped for cash.
Privacy concerns could also arise regarding the federal government's ability to open a financial account in a child's name without parental permission in the days that follow.
Child savings accounts aren’t new
While there might be kinks to work out with the Trump savings accounts, it’s important to note that the idea behind the accounts isn’t the first of its kind.
Democrats have also pitched a similar notion about seven years ago, when Sen. Cory Booker (D-N.J.) proposed the creation of a savings account, “baby bonds,” with $1,000 seed money for newborns.
At the time, Booker posted on Twitter (now X): “We need to close the wealth gap and give every child born in the U.S. a fair shot at the American Dream — my baby bonds proposal is a clear path.”
However, Booker’s proposal struggled to gain bipartisan support.
There are also several key differences between a Trump Account vs the baby bonds that Booker proposed:
- While Trump Accounts are to be contributor-funded, Booker’s baby bonds would be funded by the federal government.
- Under Booker’s proposal, contributions would be made based on family income, with potentially larger initial deposits for lower-income families, while Trump Accounts rely more on “who you know.”
- The baby bonds idea was designed to “substantially close the racial wealth gap,” while the Trump Accounts are formulated to “help produce new capitalists,” Cruz said.
“[Booker’s proposal] is just a government program,” Cruz told Semafor in his interview, “Where this [Trump Account] is very much designed to get the next generation to invest in the market.”
While certainly a surprise in the Trump megabill, the “Trump Account” provisions have found continued support in Congress.
Stay tuned for more updates.
This article has been updated to reflect the latest bill amendments, the new "Trump account" name, and to provide information about a recent investment roundtable.
Read More
-
Ten Cheapest Places to Live in TennesseeProperty Tax Moving to Tennessee might be within your reach. Homeowners in these counties pay some of the lowest property tax bills in the state.
-
I'm 60 with $2.8 million saved. I'm miserable working, but I need health insurance until Medicare kicks in. What are my options?The 'health care desert' is real. We ask financial experts for advice.
-
How the 2025 Child Tax Credit Rules Impact Single ParentsTax Credits New changes to family tax credits, like the Child Tax Credit, will impact the eligibility of some households.
-
Retirees Should Watch These Four Key Tax Changes in 2025Tax Changes This year brings key tax changes that could affect your retirement taxes and income.
-
Georgia Could Be Latest State to Eliminate Income TaxesState Tax Eliminating the Georgia state income tax: Last-minute summer trend or permanent policy?
-
Biggest Winners and Losers in Trump's New Tax PlanTax Law Trump’s mega tax overhaul, known as the ‘One Big Beautiful Bill,’ has distinct winners and losers. Which group do you fall into?
-
No Capital Gains Tax on Home Sales Coming Soon? What You Need to KnowTax Policy Capital gains taxes are back in the spotlight. This time, the chatter on Capitol Hill has to do with rising home prices.
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund, a smaller one or something in between next year. Here are five ways the new law could impact your bottom line.
-
Money for Your Kids? Three Ways Trump's ‘Big Beautiful Bill’ Impacts Your Child's FinancesTax Tips The Trump tax bill could help your child with future education and homebuying costs. Here’s how.
-
New Cap on Gambling Loss Deductions Begins Soon: What to Know NowTax Changes A gambling losses tax deduction cap in Trump’s “big beautiful bill” is causing an uproar. Here’s what you need to know.
