A new kind of tax-advantaged savings account for children — officially a “Trump Account” — opened for contributions on July 4, 2026. If you’re a parent, or a small business owner weighing whether to offer one as a perk, here’s a practical, politics-free rundown of how they work and who they actually help.
This is general information, not individual tax advice — the right treatment depends on your specific situation.
What a Trump Account actually is
Created by the 2025 federal tax law, a Trump Account is essentially a traditional IRA opened on behalf of a child. Any child under 18 with a Social Security number can have one. The money is invested and grows tax-deferred, and — with limited exceptions — stays in the account until the year the child turns 18, at which point it largely follows the normal traditional-IRA rules.
The $1,000 head start
For children who are U.S. citizens born between January 1, 2025 and December 31, 2028, the Treasury seeds the account with a one-time $1,000 contribution once an account is opened for the child. That government seed does not count against the annual contribution limit — it’s on top. For eligible newborns, it’s essentially free money that then compounds for 18+ years.
How much can go in each year
Total contributions are capped at $5,000 per child per year (indexed for inflation after 2027). That money can come from parents, grandparents, other relatives, and — importantly for business owners — employers. Contributions during the “growth period” generally can’t be withdrawn until the year the child turns 18.
The small-business angle most coverage buries
An employer can contribute up to $2,500 per year (within the $5,000 overall cap, also indexed after 2027) into the Trump Account of an employee — or the employee’s child — if the business sets up a formal plan to do so. For a small business competing for talent, that’s a genuinely differentiated benefit at a modest, predictable cost: it helps your employees’ families build long-term savings without the overhead of a full retirement plan. The catch is that the plan has to be properly established — which is exactly the kind of thing worth a quick conversation with your CPA before you roll it out.
How they’re taxed (this part trips people up)
Don’t expect an upfront deduction. Contributions from parents and other individuals are not tax-deductible — but they do create “basis,” meaning that portion comes back out tax-free later. Pretax contributions — from employers, charities, or the $1,000 government seed — are taxable as ordinary income when withdrawn. Growth inside the account is tax-deferred along the way. In short: the benefit is tax-deferred compounding and a head start, not a write-off this year.
Should you open one?
For many families, a Trump Account is a reasonable, low-effort way to capture the $1,000 government seed and let decades of tax-deferred growth do the work — especially for a child born in the 2025–2028 window. But it’s one tool among several. A 529 plan is hard to beat for education costs, a custodial Roth IRA can be powerful once a child has earned income, and UTMA/UGMA accounts offer flexibility with fewer strings. Each has different rules on how and when the money can be used, so the right mix depends on your goal — education versus general savings versus retirement — and your tax situation.
The VarStan take
Trump Accounts are brand new, and the rules will keep getting refined as the IRS issues guidance. If you’re a parent, opening one to grab the $1,000 seed is low-risk and worth doing. If you’re a business owner, the employer-contribution feature is worth a serious look as a recruiting and retention perk — just make sure the plan is set up correctly. Either way, fold it into your broader tax and savings plan rather than treating it in isolation. If you’d like help deciding where it fits — or setting up an employer plan the right way — that’s a conversation we’re glad to have.
This article is general information, not tax advice. Trump Account rules are new and subject to change as guidance is issued; please consult a CPA about your specific situation.
Related reading: Vehicle & Mileage Deductions: What's Actually Deductible and Estimated Quarterly Taxes: A Small Business Owner's Guide.