You have undoubtedly heard about new federally seeded investment accounts for children commonly referred to as Trump Baby Accounts. Regardless of politics, here’s what matters from a financial planning standpoint.
Spoiler alert – there are still some unknowns, and we expect the rules to change over the next 17 years.
What Are Trump Baby Accounts?
Trump Baby Accounts are proposed federally seeded investment accounts for children that may include:
- A $1,000 government deposit for eligible birth years (2025–2026). May be extended for future years.
- Up to $5,000 per year in contributions
- Tax-deferred growth
- Conversion to something similar to a traditional IRA at age 18. Might be possible to convert to a Roth IRA. Important details on both still being worked out, so stay tuned.
- Withdrawals taxed as ordinary income, most likely
- You can open these accounts for older children, but they will not receive the seed money
Who Benefits Most?
- Children born in 2025 or 2026 (eligible for seed money)
- Families wanting flexibility beyond education-only savings
- Grandparents looking for gifting opportunities (aren’t we all?)
Important Differences
Unlike a 529 plan:
- Withdrawals are not tax-free for education
- The child gains control at age 18
Unlike custodial accounts:
- Growth is tax-deferred
- Investment options may be more limited
Should You Open One?
If eligible, it likely makes sense to:
- Capture the government seed deposit of $1000. Some companies are also contributing on behalf of their employees.
- Coordinate contributions with 529 funding
- Consider the impact of control transferring at age 18. The child will likely pay taxes (at his/her rate) plus a 10% penalty if the funds are actually withdrawn at age 18, per the current plan. Subject to change.
Trump Baby Accounts are best viewed as a complementary planning tool — not a replacement for 529 plans or other strategies
How do we open a Trump Baby Account?
Once fully implemented:
- Confirm eligibility (U.S. citizen child with Social Security number)
- Open through a participating brokerage or financial institution, likely not before July. The custodian will guide you through the process to receive the seed money.
- If your child was born in 2025, you can start the process with your 2025 tax return via Form 4547, but you do not have to do it this way
- Fund annually (up to $5,000 in total from all family members)
- Invest according to program guidelines; most likely will be limited to an S&P Index 500 Fund
We expect major custodians to offer these accounts once final rules are in place.
As always, we are happy to help you work through the scenarios here.
Linder Financial Services is a dba of Thayer Partners LLC, (“Thayer”). Thayer is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Thayer by the SEC nor does it indicate that Thayer has attained a particular level of skill or ability. This material prepared by Thayer is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Opinions expressed by Thayer are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Thayer, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Thayer does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.
