Take a look through the window in the nursery ward at the newborns and you will see little ones who can be saving for retirement. The One Big Beautiful Act will help get these children off to a good start since every child who is a US citizen born between January 1, 2025 and December 31, 2028 is eligible for a $1,000 pilot program contribution to a Trump IRA to get them started.
A Trump account contribution is allowed for all children who have not turned 18 before the end of the year. Contributions can be made by anyone but private contributions cannot exceed $5000 per year. An employer can make a contribution of up to $2,500 for a child and that contribution would not be considered taxable income to the employee. Certain government entities and charities may also contribute to these accounts. Regardless of where the money comes from[1], $5,000 is currently the annual limit and contributions are not tax-deductible.
How do these accounts work? The IRS has posted Form 4547 that an adult, usually a parent or guardian, can use to apply to open a Trump IRA. The application for government funding for an eligible child is done on the same form. The form itself is one page; the instructions are five! The form can be filed with your 2025 tax return or uploaded through a portal that will be established before July 4, 2026, the first day these accounts can be funded.
How are these accounts invested? They must be invested in certain mutual funds or exchange-traded funds that track the S & P 500 or another index of primarily American equities. Account fees are capped at .1%. Withdrawals can be made starting the year the child turns 18, but they are taxable income, generally treated the same as a traditional IRA and possibly subject to a 10% penalty for distributions before age 59 ½.
Is a Trump account the right investment choice for every child? For those receiving the $1,000 pilot program funding, absolutely. When considering ongoing contributions, funders should consider 529 plans as well. 529 plans grow tax-free and have much higher funding limits and more flexibility in how they are invested. Since a 529 is used primarily for education expenses, your should consider how the funds for the child will be used and find the combination of savings vehicles that works best to accomplish your goals.
If you need help navigating these waters, please contact our office for assistance.
[1] Except for governments and certain charities.
Article contributed by Lois S. Fried, CPA, CFE, CBA, ABV
