A new tax-deferred investment account for children launches July 4, 2026. Any child under 18 with a Social Security number is eligible. These accounts will be now be part of the investment discussion for minors, but two issues have gone largely unreported heading into the launch date. Notably, state tax may apply on an account that does not permit withdrawals, and an estate tax gift form may need to be filed even though contributions are below the annual gift exclusion. Here is the full picture.
How Trump Accounts Actually Work
Trump accounts are traditional IRAs subject to special rules until the year the child turns 18, called the growth period. After that, normal IRA rules apply.
Who can open one: Any U.S. citizen child under 18 with a Social Security number. One account per child. The account is opened by filing Form 4547, (named for Trump's service as the 45th and 47th president) or eventually through trumpaccounts.gov.
Four types of contributions are permitted:
- Individual contributions from parents, grandparents, or anyone else, up to a combined $5,000 per year across all individual contributors. Employer contributions count against this limit. Prior-year contributions are not allowed, unlike regular IRAs.
- Employer contributions of up to $2,500 per year for teenage employees or employee dependents. This counts toward the $5,000 annual cap. Employers can also offer Trump account contributions through salary reduction as part of a cafeteria plan, though only for dependents, not teenage employees.
- Tax-exempt organization and government contributions to targeted groups of children. These do not count toward the $5,000 limit and have no stated maximum. Notable examples include commitments from the Dell Foundation ($6.25 billion for lower-income children) and Ray Dalio's foundation ($75 million for Connecticut children).
- The $1,000 federal seed contribution, a one-time pilot program for children born between January 1, 2025 and December 31, 2028. Children born outside that window can still have an account opened and funded. The seed money is limited to that birth window only.
Individual contributions are after-tax and not deductible. The $1,000 federal contribution, employer contributions, and tax-exempt organization contributions have no basis, meaning they and their earnings are fully taxable when withdrawn. Individual contributions are basis, so those amounts come out tax-free, but earnings are taxable.
Investments during the growth period are limited to low-cost index funds (expense ratio under 0.1%) tracking the S&P 500 or another index of primarily U.S. companies. Mid-cap and small-cap U.S. index funds qualify. No individual stocks, no bonds, no leverage. After age 18, any investment available to a traditional IRA is permitted.
The lockup is absolute. No withdrawals during the growth period except for four specific situations: return of excess contributions, qualified rollovers to a new custodian, a direct transfer of the entire balance to the child's ABLE account during the year the child turns 17, and distributions after the death of the account beneficiary. There are no hardship exceptions. Custodians are required to enforce this.
One important note on rollovers: the entire balance must move when switching custodians. Partial transfers are not allowed.
At age 18, the account becomes subject to normal traditional IRA rules. Roth conversions are permitted.
If the child passes away during the growth period, the account ceases to be a Trump account or IRA as of the date of death. The fair market value, reduced by any basis, is taxable to the beneficiary. Current guidance does not address whether named beneficiaries can be designated in advance (hopefully this will be resolved).
Trump accounts do not count toward the regular IRA contribution limit during the growth period, allowing a doubling up of contributions for a child with earned income. Beginning at age 18, Trump account contributions are aggregated with other IRAs and the standard limit applies.
Issue One: Your State May Tax These Accounts Differently
At the federal level, Trump account earnings are tax-deferred. States are not required to follow suit.
According to a March 2026 Washington Post report by Julie Z. Weil, here is where things stand:
Source: Washington Post report by Julie Z. Weil, March 2026.
The full breakdown, in the reporter's own categories:
- Nine states have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
- 23 states and D.C. conform to federal treatment or have specifically confirmed they will follow it: Alabama, Arkansas, Colorado, Connecticut, Delaware, Idaho, Illinois, Iowa, Kansas, Louisiana, Maryland, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Oregon, Rhode Island, Utah, Virginia, West Virginia, and Vermont.
- Three states have legislation pending: Georgia, Indiana, and Maine.
- Three states will address it later: Minnesota, Mississippi, and North Carolina.
- Seven states have indicated they will not follow federal tax treatment: California, Hawaii, Kentucky, Massachusetts, Pennsylvania, South Carolina, and Wisconsin. In these states, earnings on all contributions would be taxed annually. In California and possibly others, employer and tax-exempt organization contributions may be taxed in the year made.
- Remaining states did not respond to the reporter. Check with your state tax office if yours is among them.
Here is the practical problem. The account cannot be touched until the child turns 18. If your state taxes the annual earnings, that bill comes out of your own pocket every year with no ability to draw from the account to cover it. For families on a tight budget, or for employees whose employer contributes annually, that out-of-pocket cost compounds over years.
Living in one of the seven states does not make a Trump account a bad idea. It just adds a factor that needs to be honestly weighed before deciding how much to contribute each year. Arizona conforms to federal treatment.
Issue Two: A Gift Tax Return May Be Required
Unlike 529 plans, Trump accounts were not written with language qualifying contributions for the annual gift tax exclusion, which is $19,000 per person per recipient in 2026. Because the child cannot access the funds until age 18, contributions are classified as future-interest gifts under current law, which do not qualify for the exclusion.
According to formal comments submitted to the IRS by the American College of Trust and Estate Counsel in January 2026, any contribution, regardless of size, may require the contributor to file a federal gift tax return. No actual gift tax is owed for most people. The lifetime exemption is approximately $13.99 million. But the filing requirement is real.
IRS guidance is expected and may resolve this. The accounts open July 4 regardless. Anyone contributing before the fix arrives should be aware of the compliance issue that may exist if this does not get resolved.
A Strategy Worth Knowing: The Age-24 Roth Conversion
At age 18, the Trump account becomes a traditional IRA. A meaningful portion of the balance will carry a tax liability regardless of who contributed, because the federal seed money, employer contributions, and earnings on individual contributions are all taxable when withdrawn or converted. The question is not whether that tax gets paid. It is when, and at what rate.
The kiddie tax complicates an early conversion. It taxes a child's unearned income, including Roth conversion income, at the parents' marginal rate until the year the child turns 24. Converting before then could mean paying at the parents' top rate, which defeats much of the purpose.
At 24, the kiddie tax expires. A young adult early in their career is likely earning less than they ever will again. Converting the Trump account balance to a Roth at that point means paying tax on the taxable portion at a low early-career rate, potentially 10 or 12 percent, rather than the 22, 24, or 32 percent they will face in peak earning years. After conversion, the entire balance grows tax-free for decades and comes out completely tax-free in retirement.
If $5,000 per year is contributed from birth and compounds at historical market rates, the balance at age 18 could exceed $150,000 (past performance is no guarantee of future results). Converting that at a low rate at 24 and leaving it untouched until retirement is an outcome that is difficult to replicate through any other account structure available today.
Still Unresolved at Launch
The Bottom Line
Trump accounts are a genuinely interesting long-term savings vehicle, and not just for newborns. Any child under 18 can have one opened at the launch date. The state tax question and the gift tax filing requirement are real considerations that deserve attention before contributing, especially in high-tax states or for families where annual employer contributions are part of the picture.
Whether this account belongs in your plan, and how prominently, depends on your full situation, and other alternative options should be part of that discussion. We are happy to talk through it.
