The Working Families Tax Cuts, part of the 2025 One Big Beautiful Bill Act, created a new type of tax-deferred individual retirement account (IRA) for eligible children under the age of eighteen – a section 530A account, commonly referred to as a Trump Account. To increase enrollment, the Treasury Department recently issued temporary regulations that established automatic account creation beginning October 1, 2026, leading to more than sixty million new accounts. However, for a child with an automatic account, a parent or legal guardian must “claim” the account by downloading the app, verifying personally identifying information, and submitting IRS Form 4547 to become the custodian.
Each child’s account is linked to their Social Security number so they can have only one account. Once an account is open and claimed, it becomes eligible for family and employer contributions (the mechanics for employer contributions are not yet active but are currently in the works). Alternatively, charitable organizations and state or local governments can make broad-based gifts regardless of account status. Additionally, parents or guardians of a qualified child born between January 1, 2025, and December 31, 2028, are eligible for a $1,000 opening deposit to be paid directly into their child’s 530A account. However, the custodian must make the required pilot-program election for the Trump Account to receive the $1,000 federal government contribution.
Between the year of enrollment and the year the child turns eighteen, up to a total of $5,000 per year (inflation-adjusted after 2027) can be contributed from all sources, including up to $2,500 from an approved employer program per employee (not per dependent). Personal contributions are considered a gift and count toward the giver’s annual gift tax exclusion ($19,000 per individual in 2026) or lifetime gift tax exemption ($15M in 2026) if the current $19,000 annual gifting limit is exceeded. Any contributions above the $5,000 per year limit are subject to an annual 6% tax penalty until the additional amount is withdrawn. However, government and nonprofit contributions may be excluded from the annual contribution limit.
Initial contributions are automatically invested in the State Street SPDR S&P 500 ETF (SPYM), but allocations can be adjusted by the custodian within a limited number of low-cost US-focused funds. On January 1st of the year the child turns eighteen, the account automatically becomes a traditional IRA controlled by the child, and the same rules as other traditional IRAs then apply – earned income contribution limits, tax-deferred growth, early withdrawal penalties before age 59½ (with some exceptions), and withdrawals are counted as taxable income. The investment allocation restrictions are also lifted.
Does contributing to your child’s or grandchild’s Trump Account make sense? It depends on your specific goals and objectives. There are many additional savings options such as 529s for education, UGMAs/UTMAs for general investing, and traditional & Roth IRAs for retirement savings, but they all come with their own unique rules and limits. We would love to chat about which type of account is best suited to meet the goals you have for your child or grandchild. Please reach out if you would like to start a conversation or discuss any additional goals that you might have as part of a comprehensive financial plan.
This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.