In our South Loop of Chicago Tax Preparation office, and our Homewood, IL tax preparation office, we often come across taxpayers who want to legally reduce their income tax bill by using the tax code to their advantage. Many of the hardest hit taxpayers are those who don’t have children, and while this new clause in the OBBBA won’t provide a new tax deduction for those with children, for taxpayers who feel “now” is the right time to reproduce, the current administration is offering a sort of savings account for babies born between 2025 and 2028. It is essential to note that this $1,000 incentive isn’t in the form of cash (like the stimulus checks received during COVID) but rather it’s a credit to a child’s retirement-type account, and the funds cannot be accessed. What is this $1,000 incentive that we’re referring to? Keep reading to find out.
In 2025, Congress signed into law the One Big Beautiful Bill Act (OBBBA), which introduced a brand-new savings vehicle: Trump Accounts. At first glance, they appear to be traditional IRAs (without the requirement for contributions to be from earned income), but these accounts come with special rules for beneficiaries under the age of 18. Used correctly, they can provide a powerful head start on your child’s financial future.
Free Starter Money for Newborns
As part of a pilot program, parents of U.S. citizen newborns in 2025-2028 can elect to enroll their child in a Trump Account. Once the parent makes the election, the federal government will deposit $1,000 of free seed money into the account.
Starting July 4, 2026, parents, grandparents, or others may contribute up to $5,000 per year (indexed for inflation beginning in 2028) until the year the child turns 18. The $1,000 government contribution does not count against this limit. To participate, your child must have a Social Security number when you make the election.
How Trump Accounts Work
- Contributions by individuals made before the year the child reaches age 18 are not tax-deductible, but funds inside the account grow tax-deferred. Tax deferred means the income tax is pushed down the road, not eliminated.
- No withdrawals are permitted until the child reaches the age of 18.
- When the child reaches 18, the Trump Account automatically converts into a traditional IRA (retirement accounts that require contributions to be earned through work), subject to the normal rules governing IRA contributions and distributions.
- At that point, your child must have earned income to continue contributing. The account can later be converted into a Roth IRA if desired.
- Your child will be in full control of the account once they turn 18.
- Your child can still contribute to a Roth IRA if they have earned income (such as working in your business).
- You can continue to invest in a 529 plan to help fund college costs.
Investments and Employer Contributions
Until the child turns 18, the account can only hold “eligible investments”—low-cost index mutual funds and ETFs that meet IRS guidelines.
Employers may also contribute up to $2,500 annually (indexed for inflation after 2028) to Trump Accounts set up for under-age-18 employees or dependents of employees. These contributions are tax-free to the employee and deductible for the employer as fringe benefits.
State, local, or nonprofit organizations may also make contributions under future IRS rules.
Why This Matters
Over time, Trump Accounts can grow into substantial savings. For example, if you contribute $5,000 annually for 17 years, plus the $1,000 government seed, and the account grows at 5 percent per year, it could be worth about $138,000 by the time your child turns 18. If left invested until your child reaches age 60, that balance could grow to over $1.2 million.
Unlike 529 plans or Coverdell accounts, Trump Accounts don’t require your child to use the funds for education. Unlike custodial accounts or trusts, they offer tax-deferred growth and avoid many of the kiddie tax pitfalls.
Bottom Line
Trump Accounts may not be perfect, but with free starter money, meaningful contribution limits, potential employer or community support, and decades of tax-deferred compounding, they can be a strong wealth-building tool for children.
Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office at 855-743-5765. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.
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