The Act creates a new type of tax-preferred savings account for children. These accounts are established as IRAs under I.R.C. § 408(a), but they are not Roth IRAs, and there is no tax deduction for contributions.
The account must be established before the year the child turns 18, and the child must have a Social Security number. The contribution limit is $5,000 per year, indexed for inflation.
Contributions are permitted until the beneficiary turns 18. No contributions can be made until 12 months after July 4, 2025 (the date of enactment). Parents and other relatives can contribute to Trump accounts. Additionally, employers may contribute up to $2,500 of the $5,000 annual contribution, and such employer contributions are not gross income to the beneficiary or the parent. The Act also permits other entities, nonprofit organizations, and governmental entities to contribute to Trump’s accounts. Contributions from these entities are not subject to the $5,000 limit, but these contributions must be provided to all children within a “qualified group.” Some rollover contributions are allowed.
The Act establishes a pilot program under which the Secretary of the Treasury will contribute $1,000 to an eligible account for each qualifying child (U.S. citizens born in 2025-2028). If a Trump account has not been established for a child when a parent files a tax return, the IRS will create the account and notify the taxpayer responsible for the child. The Trump account can be declined. To receive the $1,000 credit, the taxpayer with the qualifying child must include the Social Security numbers of both the taxpayer and the child on the taxpayer’s tax return. Earnings from Trump accounts are not subject to tax until distributed. Generally, no distributions from the account are permissible until the account holder reaches 18. It appears that traditional IRA distribution rules apply.
It appears that every eligible child should seek the free $1,000 from the Treasury, but there seems to be little incentive to contribute to the plans, as the contributions are not deductible and the distributions are taxed. A Section 529 college savings plan would appear to be a better tax vehicle, or a Roth IRA, if the beneficiary has earned income sufficient to make a Roth contribution.