Federal Savings Program for Children Launches as 'Trump Accounts'

The U.S. Treasury Department said the newly created Trump Accounts, a federal savings and investment vehicle for children, went live on July 4. According to the agency, over 6 million accounts have been opened for minors, and 1.4 million eligible newborns will receive a one-time $1,000 federal contribution.

Trump Accounts function similarly to individual retirement accounts, allowing after-tax contributions to grow tax-deferred until the child turns 18. The account is owned by the child, while a parent, legal guardian or other authorized adult serves as custodian until that age. Withdrawals made after the child’s 18th birthday are taxed at the child’s ordinary income rate, less the portion attributable to after-tax contributions.

Eligibility is limited to U.S. citizens under 18 who have a Social Security number. To qualify for the $1,000 pilot contribution, a child must be born between Jan. 1 2025 and Dec. 31 2028, and the account must be opened by an individual who can claim the child as a dependent for tax-credit purposes. The Treasury requires the use of Form 4547 to open an account and to elect the federal contribution.

Contributions may come from family members, employers, states, nonprofit organizations and private foundations. Family and friends can give after-tax money without a tax deduction, while employers may contribute up to $2,500 per employee per year on a pre-tax basis. The combined annual contribution limit for family, friends and employer funds is $5,000 per account, subject to cost-of-living adjustments after 2027. Contributions from governments and nonprofits do not count toward this limit.

By law, all contributions must be invested in low-cost, broadly diversified U.S. stock index funds or ETFs with expense ratios of 0.10% or less. The Treasury designated the State Street SPDR Portfolio S&P 500 ETF (SPYM) as the default investment, and indicated that parents will later be able to choose among four additional funds.

Robinhood will host the accounts, and an app developed by Robinhood and the Bank of New York will allow custodians to monitor investments. The amount a child will have at age 18 depends on annual contributions and market performance.

Withdrawals before age 59½ may be subject to ordinary income tax and a 10% early-withdrawal penalty, unless the money is used for qualified expenses. Contributions made with after-tax dollars are taxed only on the earnings portion, while pre-tax contributions from employers or governments are fully taxable upon withdrawal.

Policy analysts note that the program may primarily benefit families able to make regular contributions, and question its impact on lower-income households after the pilot ends. Urban Institute senior policy associate Madeline Brown said, "About a third of families don’t have $2,000 in emergency savings, so it’s no surprise that they don’t have the means to start saving in other plans for their children." Senior fellow Elaine Maag added that further guidance is needed to determine whether withdrawals could affect eligibility for federal aid such as Pell Grants or SSI.