Written By Lauren Miller Warren, CPA
The One Big Beautiful Bill Act (OBBBA) was signed July 4, 2025, and, among other provisions, permanently extends the 2017 tax cuts, eliminates taxes on tips and overtime (with limits), and raises the child tax credit. For clients, it provides immediate tax relief and new savings opportunities. This article clarifies Section 70204, which creates Trump Accounts. A Trump Account is a tax-deferred savings plan for U.S. citizen children under the age of 18, which includes a $5,000 annual contribution limit and is designed to build wealth throughout generations.
Section 70204 of the OBBBA creates a new type of tax-advantage account, called a Trump Account, which is an individual retirement account (IRA) for individuals under 18 years old (Source: U.S. Senate Committee on Finance). Each eligible U.S. citizen born after December 31, 2024 and before January 1, 2029 for whom a Trump Account is established will receive an initial $1,000 pilot program contribution from the government (Source: 26 U.S.C. §6434), with the potential for parents to contribute up to an additional $5,000 per year until the year that the child reaches age 18. Employers may make an annual contribution of up to $2,500 to a Trump Account per employee, and that contribution will not impact the employee’s taxable income (Source: IR-2025-117). Employer contributions and government contributions such as those through the pilot program do not count towards the $5,000 per year limit.
Earnings accrue tax-free, meaning any growth on the account is not taxed until the date of withdrawal. Once the child reaches the age of 18, the Trump account is treated under the same rules of Traditional IRA accounts, which includes tax-free withdrawals for qualified purposes like college expenses, first-time home purchase (up to $10,000 lifetime), or retirement after age 59 ½ (Source: IRS Notice-2025-68). Withdrawals from the account are subject to penalties for non-qualified uses before age 59 ½.
Trump Accounts can be established by filing Form 4547 when filing your 2025 individual tax return or by using an online portal that is expected to be available by Summer 2026. However, contributions cannot be made to these accounts before July 5, 2026 (Source: Trump Accounts). Funds can be invested in various stocks, ETFs, mutual funds, or savings options as long as they meet certain requirements (Source: U.S. Senate Committee on Finance).
The Trump Account pilot program contribution sunsets in just three years on December 31, 2028, while regular contributions can be made until the year that the child reaches the age of 18. Taking advantage of these tax savings now is a beneficial way to lock in decades of tax-free growth for your children. Please contact our office if you would like to discuss this opportunity further.
References
- (Source: 26 U.S.C. §6434) https://uscode.house.gov/view.xhtml?req=(title:26%20section:6434%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section6434)&f=treesort&edition=prelim&num=0&jumpTo=true
- (Source: U.S. Senate Committee on Finance) United States Senate Committee on Finance. (2025, July 4). Section-by-section summary: Title VII of the One Big Beautiful Bill Act (P.L. 119-21) as signed into law. https://www.finance.senate.gov/imo/media/doc/finance_committee_section-by-section_title_vii5.pdf
- (Source: IR-2025-117) https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-trump-accounts-established-under-the-working-families-tax-cuts-notice-announces-upcoming-regulations
- (Source: IRS Notice-2025-68) https://www.irs.gov/pub/irs-drop/n-25-68.pdf
- (Source: Trump Accounts) https://www.trumpaccounts.gov/