A new type of tax-advantaged account created under recent federal tax law changes could give some children a significant head start on long-term investing, but families should understand both the opportunities and the limits before jumping in.
“Trump accounts” are available for all children under age 18 by the end of the year. For each child born in 2025-2028, the federal government will deposit $1,000 into a newly established account. The child is the account owner, even though parents and others may control the account and make additional contributions.
“These accounts are designed to encourage long-term investing from birth,” said Andrew Zumwalt, director of the University of Missouri’s Personal Financial Planning program.
No withdrawals are generally allowed until the child turns 18. Once the child reaches adulthood, the account functions much like a traditional IRA. Earnings are tax-deferred, meaning taxes are owed when money is eventually withdrawn, not while it is growing.
Families and others can contribute up to $5,000 per year to a child’s account. Those contributions are considered “basis,” meaning they have already been taxed. Earnings, along with any government or employer contributions, are taxable when withdrawn.
Investments within the accounts must be placed in low-cost index funds or exchange-traded funds (ETFs), a requirement intended to keep fees low and returns more predictable over time.
Accounts can be established now using IRS Form 4547 filed alongside a tax return, and additional information is available online. While the child owns the account, multiple parties may contribute. Zumwalt noted examples such as employer or family contributions. An initiative by Dell Technologies founder Michael Dell and his wife, Susan, will contribute to $250 to accounts for children age 10 and under in ZIP codes where the median income is less than $150,000 per year. Zumwalt notes that this would include almost all Missouri ZIP codes.
Zumwalt shared a hypothetical example to illustrate the long-term potential. A child born in January 2025 receives the initial $1,000 government deposit. If parents contribute $5,000 annually until age 18 and the account earns an average annual return of 7%, the account would be worth nearly $170,000 at age 18. Of that total, $90,000 would be basis, with the remainder tax-deferred growth.
At adulthood, funds can be rolled into other retirement accounts. In Zumwalt’s example, the tax-deferred portion moves into an employer sponsored plan, while the basis rolls into a Roth IRA. Over decades, that early start can translate into several million dollars in retirement savings.
These accounts do not replace existing family tax benefits, Zumwalt noted. The child tax credit remains $2,200 for 2025 and will increase with inflation, while dependents who are not eligible for the child tax credit remain capped at a $500 credit. The child and dependent care credit for 2025 is unchanged from prior law, though the dependent care flexible spending account limit increases to $7,500 beginning in 2026.
As with any new program, Zumwalt encourages families to weigh how Trump accounts fit into their broader financial picture. “They can be powerful,” he said, “but only if families understand the rules and commit to the long-term horizon these accounts are built for. Families should consider other accounts, like 529 plans, for needs related to higher education expenses.”
Zumwalt discussed this and other changes to federal income tax law at a recent training for volunteers in the Volunteer Income Tax Assistance (VITA) program, in which IRS-certified volunteers discuss and prepare tax returns for free. For more information, visit the Missouri Taxpayer Education Initiative website. A new type of tax-advantaged account created under recent federal tax law changes could give some children a significant head start on long-term investing, but families should understand both the opportunities and the limits before jumping in.
“Trump accounts” are available for all children under age 18 by the end of the year. For each child born in 2025-2028, the federal government will deposit $1,000 into a newly established account. The child is the account owner, even though parents and others may control the account and make additional contributions.
“These accounts are designed to encourage long-term investing from birth,” said Andrew Zumwalt, director of the University of Missouri’s Personal Financial Planning program.
No withdrawals are generally allowed until the child turns 18. Once the child reaches adulthood, the account functions much like a traditional IRA. Earnings are tax-deferred, meaning taxes are owed when money is eventually withdrawn, not while it is growing.
Families and others can contribute up to $5,000 per year to a child’s account. Those contributions are considered “basis,” meaning they have already been taxed. Earnings, along with any government or employer contributions, are taxable when withdrawn.
Investments within the accounts must be placed in low-cost index funds or exchange-traded funds (ETFs), a requirement intended to keep fees low and returns more predictable over time.
Accounts can be established now using IRS Form 4547 filed alongside a tax return, and additional information is available online. While the child owns the account, multiple parties may contribute. Zumwalt noted examples such as employer or family contributions. An initiative by Dell Technologies founder Michael Dell and his wife, Susan, will contribute to $250 to accounts for children age 10 and under in ZIP codes where the median income is less than $150,000 per year. Zumwalt notes that this would include almost all Missouri ZIP codes.
Zumwalt shared a hypothetical example to illustrate the long-term potential. A child born in January 2025 receives the initial $1,000 government deposit. If parents contribute $5,000 annually until age 18 and the account earns an average annual return of 7%, the account would be worth nearly $170,000 at age 18. Of that total, $90,000 would be basis, with the remainder tax-deferred growth.
At adulthood, funds can be rolled into other retirement accounts. In Zumwalt’s example, the tax-deferred portion moves into an employer sponsored plan, while the basis rolls into a Roth IRA. Over decades, that early start can translate into several million dollars in retirement savings.
These accounts do not replace existing family tax benefits, Zumwalt noted. The child tax credit remains $2,200 for 2025 and will increase with inflation, while dependents who are not eligible for the child tax credit remain capped at a $500 credit. The child and dependent care credit for 2025 is unchanged from prior law, though the dependent care flexible spending account limit increases to $7,500 beginning in 2026.
As with any new program, Zumwalt encourages families to weigh how Trump accounts fit into their broader financial picture. “They can be powerful,” he said, “but only if families understand the rules and commit to the long-term horizon these accounts are built for. Families should consider other accounts, like 529 plans, for needs related to higher education expenses.”
Zumwalt discussed this and other changes to federal income tax law at a recent training for volunteers in the Volunteer Income Tax Assistance (VITA) program, in which IRS-certified volunteers discuss and prepare tax returns for free. For more information, visit the Missouri Taxpayer Education Initiative website.
PHOTO: Couple with children relaxing on sofa with laptop. (Adobe Stock │ #483713030 – fizkes)
