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.
Trump Accounts enter the fray.
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Introduced in Trump's new tax and spending bill, dubbed 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 tax-deferred (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 "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? 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 for newborns equals $1,000
Under the Trump tax bill, the GOP created a provision for Trump Accounts applicable to kids under age 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 can open your child’s account for you (more on that below).
Trump 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 Trump child savings account
Several individuals can 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 might 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's a catch: Contributions can't be made into a Trump savings account after the child reaches age 18.
Trump Account distributions: 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 can be made for higher education, small business expenses and first-time home purchases (up to $10,000), per the Tax Foundation.
- Withdrawals can also be used for specific situations, like natural disaster-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 59½).
Would Trump savings accounts for children get taxed?
Contributions to a Trump Account might be made with after-tax dollars. But withdrawal taxation might depend on the source and type of income.
- For instance, distributions for qualified expenses from funds received by an employer might be taxed at the ordinary income federal tax bracket rate when distributed.
- But distributions for qualified expenses from parents might not be taxable.
Any interest from the account grows tax-deferred and could be taxed as ordinary income when withdrawn. Some suggest that even the $1,000 seed money given by the government will be taxed when distributed.
Overall, the tax treatment of a Trump Account is expected to be similar to that of an IRA.
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 Accounts: Are they 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 Trump child savings 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.
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