How Trump Savings Accounts Actually Work Under OBBBA

They’re being called Trump Savings Accounts, and the easiest way to think about them is this:
it’s a baby investment account that eventually turns into an IRA.

The IRS hasn’t released full guidance yet, but the core mechanics are already clear enough to explain to clients. Here’s how it works in plain English.

What a Trump Savings Account Is

A Trump Savings Account is a government-created investment account designed to get kids investing early.

It borrows ideas from IRAs and 529 plans but doesn’t fully behave like either.

The account is opened for a child. Money goes in. It grows tax-deferred. No one can touch it for years. Then, at adulthood, it converts into an IRA.

No education requirement. No college strings attached.

Who Qualifies

To be eligible, the child must be:

• A U.S. citizen

• Have a Social Security number

• Be age 17 or younger at the end of the tax year

The program applies to children born between January 1, 2025 and December 31, 2028 for the initial government funding piece.

Accounts become available in 2026, but contributions can’t start until July 4, 2026.

The $1,000 Government Kickstart

Here’s the headline feature.

For qualifying newborns, the federal government puts $1,000 into the account to get it started.

That’s it. No income test. No matching requirement.

After that, families and others can add more money over time.

Contribution Rules (This Is Where Clients Get Confused)

Annual contributions are capped at $5,000 per child, indexed for inflation starting in 2028.

Who can contribute?

• Parents

• Grandparents

• Other relatives

• Friends

• Employers

Employers may be allowed to contribute up to $2,500 per year, but it’s still unclear whether that counts toward the $5,000 annual cap.

One important twist:
Government entities and charities are not subject to the $5,000 limit.

That detail matters for future policy programs and potential state or nonprofit add-ons.

How the Money Is Taxed While It Grows

Contributions are not deductible.

But once the money is inside the account, it grows tax-deferred, similar to an IRA or 529.

Investments will likely be standard options like mutual funds and ETFs.

No annual tax drag. No reporting while it compounds.

No Touching the Money Until Age 18

This is not a flexible spending account.

During the child’s early years, withdrawals are basically off-limits.

The entire design is about forced long-term compounding.

At age 18, the account automatically converts into an IRA.

What Happens After It Converts to an IRA

Once the account becomes an IRA:

• Withdrawals follow normal IRA rules

• Contributions come out tax-free

• Earnings are taxed as ordinary income

If the beneficiary pulls money out before age 59½, a 10% penalty generally applies, unless an IRA exception kicks in.

Unlike 529 plans, the money can be used for anything, not just education.

That’s a big philosophical shift. This account is about wealth building, not schooling.

Required Minimum Distributions Still Apply

Eventually, the IRS wants its cut.

Trump Savings Accounts are subject to required minimum distributions, currently scheduled to begin at age 75.

Earlier drafts floated mandatory withdrawals much earlier, but that language didn’t make it into the final law.

The Real Takeaway for Accountants

This is not a flashy tax deduction play.

It’s a policy-driven investing account meant to:

• Get kids invested early

• Normalize long-term compounding

• Push families toward capital markets instead of cash savings

For some clients, it will be a no-brainer add-on.
For others, it’ll compete with 529 plans, Roth IRAs, and trust strategies.

The key risk right now is guidance uncertainty. Contribution coordination, employer treatment, and edge cases still need IRS clarification.

Until that arrives, the best move is awareness, not execution.

This account isn’t about tax savings today.
It’s about planting a seed and letting time do the work.