How they work, who qualifies

President Trump’s One Big Beautiful Bill Act ushered in many tax changes, including a new saving and investing vehicle for families known as Trump accounts.

As trumpeted in a White House press release in August, Trump accounts are intended to “give the next generation a jumpstart on saving.”

In layman’s terms, they function as a type of tax-deferred savings account for those under 18, and they come with a starter package for any U.S. citizen born between Jan. 1, 2025, and Dec. 31, 2028: a $1,000 deposit from the government. The intended goal is to allow young people access to a tax-deferred investment that will earn and grow and later be used for things like college or buying a first home.

In December 2025, philanthropists Michael and Susan Dell announced $250 contributions to the accounts for 25 million American children 10 and under who live in ZIP codes with median incomes below $150,000, according to a White House press release. The total endowment amounts to about $6.25 billion.

“With additional donations and the $1,000 contribution from this administration, every eligible newborn U.S. citizen is set up for long-term financial security, giving the next generation a meaningful stake in our economy,” Treasury Secretary Scott Bessent wrote on X.

Trump accounts for kids, per the bill text, are defined as individual retirement accounts that are funded with after-tax dollars. Only people under 18 who have a Social Security number are eligible to open an account. Funds must be invested in a low-cost index fund.

Annual contributions are capped at $5,000, including up to $2,500 in employer contributions, which will not be included as part of the employee’s taxable income. Distributions begin when the beneficiary turns 18 and are generally subject to ordinary income tax.

Projections from the White House’s Council of Economic Advisers estimate that, for a child born in 2026, maximum contributions each year of $5,000 invested in the market with average returns could result in a balance of $303,800 by age 18 and $1,091,900 by age 28. With an annual contribution of $2,500, the balance by age 18 would be $154,800, and $555,000 by 28. Even with no contributions and only the $1,000 from the Treasury, economists project a balance of $5,800 by 18 and $18,100 by 28.

The accounts are open to anyone who will not turn 18 by the end of the calendar year in which the account is established, according to the Internal Revenue Service. The account holder must also have a Social Security number issued before opening the account. As the holder approaches 18, they can elect to open a rollover Trump account in which the entirety of their balance can be transferred into the rollover account.

U.S. citizens born between Jan. 1, 2025, and Dec. 31, 2028, have a special benefit — an initial $1,000 funded by the Treasury into any Trump account established under those terms.

Trump accounts are essentially IRAs meant to be invested in stock mutual funds or exchange-traded funds that mirror the S&P 500 or another American stock index, according to the White House’s fact sheet.

In general, early withdrawals or distributions are not allowed, except in specific instances. These include qualified rollover contributions, distributions of excess contributions over the $5,000 limit, and distributions in the event of the death of the beneficiary.

Once the account holder turns 18, money can be withdrawn without penalty for specific uses, including qualified birth or adoption expenses, disability, disaster recovery, qualified higher education expenses, qualified first-time home buyers, and terminal illness. Withdrawals for other purposes incur a 10% additional tax if made before the beneficiary turns 59½.

After that age, money can be distributed for any purpose without penalty and is taxed as ordinary income.

The enrollment process for Trump accounts is not quite ready, as the IRS just posted a draft Form 4547 in its tax forms. Once finalized, the form can be used to establish an account.

The form asks for the parent or guardian’s information and the child’s name, Social Security number, and home address. Filers can also indicate whether their child qualifies for the $1,000 pilot program contribution.

Form 4547 can be filed at any time, including at the time of an income tax return. The form can either be sent with the e-filed tax return or mailed to the IRS or, starting in mid-2026, submitted digitally through trumpaccounts.gov. Once the form is submitted, from May 2026, the Treasury Department will send information to the filer indicating the authentication process to activate the account.

Contributions to a Trump account while the beneficiary is still under 18 are not considered income. Certain contributions, like those from the pilot program, qualified general contributions and employer contributions, do not create a basis in the Trump account, while qualified rollover contributions and other contributions will do so once the account is rolled over into a traditional IRA after the 18th birthday of the beneficiary. Withdrawals from the account may be subject to a 10% additional tax on early distributions for IRA accounts, except for certain reasons, like higher education or first home purchases.

Experts interviewed by Yahoo Finance were not convinced that Trump accounts offered a clear advantage over similar options, like a traditional or Roth IRA or a 529 education savings plan.

529s, for example, allow earnings to accumulate and are not subject to federal and state taxes when used for qualified education expenses.

Zach Teutsch, a managing partner at Values Added Financial, said that a family would have to be “shockingly sure” that their child would not attend college to opt for a Trump account instead of a 529 plan.

“The giving kids money aspect is generally good,” Teutsch said. “The account structure seems ill-considered.”

Traditional IRAs offer an up-front tax deduction, while Roth IRAs are funded with after-tax money, but the dollars are withdrawn tax-free in retirement.

Trump accounts tax the money when it goes in and when it comes out. Additionally, IRAs — both types — offer a greater variety of investment options and higher contribution limits.

What’s also confusing about Trump accounts is that they allow for both after-tax contributions, like individual gifts from family members or parents, as well as pre-tax contributions, like those from employers.

In general, experts say that Trump accounts have significant drawbacks compared to other options.

“It’s not very attractive,” said Ann Reilley, CEO of Alpha Financial Advisors. “It just seems like they’re complicating things for no reason.”