By: Parsa Rezaee
The "One Big Beautiful Bill" (OBBB) offers a powerful new tool to make your dreams of giving your children a strong financial start a reality, but it comes with a fair amount of confusion. The so-called "Trump Accounts" are a new savings vehicle making headlines but also raising eyebrows.
What Are the "Trump Accounts"?
Trump Accounts are part of the OBBB and designed to encourage long-term, multigenerational savings. Think of them as a hybrid between an IRA and a 529 plan—but with fewer strings attached.
Here's how they work:
- Who can contribute: Starting July 2026, anyone can contribute on behalf of a beneficiary under age 18, much like a 529 plan. Employers may also contribute, subject to slightly different rules.
- Annual contribution limit: The limit is $5,000 per beneficiary, but employer contributions are capped at $2,500 per employee (adjusted for inflation beginning in 2027).
- Timing of Contributions/Withdrawals: Funds may not be distributed until the beneficiary reaches the age of 18. Additionally, contributions can only be made in the calendar year up until the beneficiary turns 18. If made the year of or after the age-18 year, contributions must follow traditional IRA rules.
- Investment Options: Investments are limited to low-fee mutual funds that track a qualified index.
- Approved uses: Unlike 529s, funds aren't limited to education. They can be used for first-time home purchases, starting a business, medical expenses, or even retirement (after age 59½).
- Government Seed Contribution: Every child born between January 1, 2025, and December 31, 2028, will receive a one-time $1,000 contribution from the government.
On paper, it's a game-changer. In reality, many families are left wondering: Is this too good to be true?
Understanding the Tax Implications
While contributions are not tax-deductible, Trump Accounts offer significant tax benefits:
- Tax-deferred growth of investments, similar to Traditional IRAs.
- Qualified withdrawals are partially tax-free for a broad range of life events. However, the portion of withdrawals in excess of contributions is taxed as ordinary income, plus a 10% early withdrawal penalty if the distribution is made before age 59.5.
- Employer contributions are not counted as taxable income to the employee.
- Contributions count toward the annual gift tax exclusion, which is $19,000 per recipient in 2025 ($38,000 for married couples).
Family Strategies to Maximize the Benefit
- Grandparent Gifting with Purpose:
Rather than making cash gifts that may be spent quickly, grandparents can contribute to a Trump Account for each grandchild, creating a financial legacy that grows over decades. - First-Home Funding for Young Adults:
Parents with children nearing the age of 18 may consider setting up Trump Accounts now to help fund a first home. For new parents, being proactive in contributions now will go a long way in ensuring a smoother first home-buying process. - Entrepreneurial Jump-Start:
Funds can also be used to launch a small business. This feature is particularly valuable for families with an entrepreneurial streak, allowing parents or relatives to provide meaningful startup support while preserving tax advantages. - Strategic Layering with 529s and Roth IRAs:
Trump Accounts don't replace other vehicles but complement them. Consider prioritizing education expenses through a 529 plan and reserving Trump Account funds for long-term goals, such as a first home or business.
Final Thoughts: A Legacy Tool with Evolving Rules
Trump Accounts are a promising new tool for families seeking to build lasting financial legacies—but, like any new policy, they come with unanswered questions.
That said, the opportunity is clear. With tax-deferred growth, flexible usage, and generous contribution options—including government and employer funding—these accounts can turn thoughtful planning into real, long-term impact.
If you're considering whether a Trump Account fits into your family's financial strategy, now is the time to explore your options.
Schedule a Consultation
We have helped our clients answer these questions and more. If you want a clear understanding of your financial future, and need help making changes to reach your goals, schedule a consultation and we can get started.
This material has been gathered from sources believed to be reliable, however Bedel Financial Consulting, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is provided for informational purposes and is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through Bedel Financial Consulting, Inc. Advisory services are only offered where Bedel Financial Consulting, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place.
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