Trump Accounts: A $1,000 Kickstart for Kids, But With Tax Uncertainty

What Are Trump Accounts?

A new type of savings account—informally dubbed "Trump Accounts"—is being created through recent federal legislation to encourage long-term financial security starting from birth.

Beginning in 2025, every newborn U.S. citizen will automatically have one of these accounts opened in their name, seeded with a $1,000 contribution from the federal government. After that, parents, relatives, and even employers can contribute up to $5,000 per year. Investments will be limited to low-cost index funds to help minimize fees and encourage steady growth.

What Can the Money Be Used For?

Once the child reaches adulthood, funds can be withdrawn for certain qualified expenses, such as:

• Education

• First-time home purchases

• Starting a small business

  
  

Withdrawals before age 18 will not be allowed.

So, What’s the Catch?

The biggest unknown in all of this is how the taxes will work when the money is withdrawn.

Here’s what we know:

• While contributions from parents are likely treated like after-tax savings (so that money doesn't get double-taxed), the $1,000 government contribution and any employer contributions could be fully taxable when withdrawn—including the original amount.

• The tax basis for each type of contribution could vary, which raises real questions about record-keeping, tax reporting, and withdrawal rules in the future.

• There are no current guarantees around how or when the funds can be accessed, or whether there will be penalties for early withdrawals.

In other words, while the money is real, how useful it will be down the road is still murky.

Should Families Act Now?

There’s nothing you need to do to receive the initial $1,000—it will be automatically deposited for eligible children born in 2025 and beyond.

Other than getting the free money, we recommend waiting before making additional contributions or adjusting your broader financial plan around these accounts.