U.S. Government Introduces Trump Account for Children's Savings
The U.S. government is set to introduce the Trump Account in 2026, a new savings tool for children under 18. This provision, part of the One Big Beautiful Bill (OBBB), aims to help young people save for college, a first home, or starting a business. Here's what you need to know about this new account.
The Trump Account will be opened for children born in 2025, 2026, 2027, and 2028, with an initial contribution of $1,000 from the government. Parents and others can make additional after-tax contributions of up to $5,000 per year, with employers and charities able to contribute an extra $2,500. Contributions will be invested in a single low-cost, broad stock market index fund or ETF, allowing earnings to grow tax-deferred until the child turns 18.
Withdrawals from the Trump Account will be taxed as ordinary income, similar to traditional IRAs. Qualified expenses include higher education costs, purchasing a first home, and disaster recovery expenses. Advisers are urged to be cautious when recommending alternatives to the Trump Account to avoid potential fiduciary issues. The final version of the Trump Account resembles a traditional IRA but lacks the benefits of tax-deductible contributions. Originally, it was intended to be a super-tax-advantaged way for young people to save for the future.
The Trump Account is a new savings option for children, offering tax-deferred growth and government contributions. It's designed to help young people fund their education, buy their first home, or start a business. Withdrawals are taxed as ordinary income, and contributions are invested in low-cost index funds. Advisers should carefully consider its implications when offering advice to clients.
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