How Trump accounts create a new way to save for minors

The One, Big, Beautiful Bill Act (OBBBA), signed into law last year, creates a new way to encourage savings for minors. It aims to further “democratize” access to wealth planning vehicles and offers a new tax-deferred savings tool for many American families.

Referred to in the law as a “Trump Account” (TA), a new type of traditional individual retirement account (IRA) will be eligible to receive contributions starting July 4, 2026. You can find details about these accounts in the administration’s FAQs,¹ a dedicated official website² and initial Internal Revenue Service (IRS) guidance issued since enactment.³ The U.S. Treasury and IRS recently issued proposed regulations, and will likely provide more guidance in the months ahead.⁴

Similarities to, and differences from, traditional IRAs

Think of a TA as an IRA with unique rules that apply especially to the period before the beneficiary turns 18 (years known as the account’s “growth period”). During the growth period, the account:

• Can be invested only in “eligible investments” (as we describe below)
• Includes an annual contribution limit that is separate from other IRAs (generally, $5,000)⁵
• Cannot make distributions to the beneficiary

Unlike other IRAs, TAs do not require the account beneficiary to have earned income for the account to be eligible to receive a contribution. On December 31 of the year before the beneficiary turns 18, most special rules expire, and then the TA generally operates under traditional IRA rules, with some exceptions.

TAs can be established only for an “eligible individual,” who is both the account owner and beneficiary. The law defines an eligible individual as anyone who:

• Is a U.S. citizen with a Social Security number
• Will not turn 18 before the end of the calendar year
• Has had a TA established at the election of an adult (known as an “authorized individual”)

How to create a TA

To create a TA, the authorized individual (legal guardian, parent, adult sibling or grandparent, in that order of priority) must make an election either via IRS Form 4547 or through an online tool on the U.S. government website (see footnote 2). As noted above, contributions to TAs may be made this year beginning July 4. Once the initial TA has been established, a rollover TA may also be established and funded during the growth period through a qualified rollover contribution (i.e., a trustee-to-trustee transfer of the entire account balance).

In a TA, the authorized individual automatically becomes the “responsible party,” who is empowered to, among other things, select investments and appoint a successor responsible party.

To encourage families to open these accounts, the U.S. government will provide a $1,000 “pilot program” contribution to the TA of any U.S. citizen who has a U.S. Social Security number and was born any time from January 1, 2025, through December 31, 2028. A minor born before 2025 may also be a TA owner/beneficiary, as long as he or she lives with the taxpayer creating the account for more than half the year, and does not provide more than half of his or her own support.

Five types of permissible contributions

Five types of contributions can be made to a TA during the growth period. Those can be grouped into two principal buckets:

• Individuals (such as parents and grandparents) and employers can collectively make an overall annual contribution that does not exceed $5,000 per account, with no more than $2,500 coming from the employer. (An employer would have to allow, under its benefits plan, for contributions to be made to this type of savings vehicle.)
• The U.S. federal government, states and charities can also contribute, and they face no annual contribution cap. However, the beneficiaries chosen must qualify for contributions through a nondiscriminatory process. Several wealthy individuals have indicated that they will make contributions to TAs through such a nondiscriminatory process.

Contributions by parents, grandparents and other individuals are nondeductible, regardless of the taxpayer’s income.

Perhaps more importantly, regarding contributions by individuals: Under current law, it does not appear that individual contributions qualify for the annual gift tax exclusion ($19,000 in 2026, per donor, per donee), nor for the generation-skipping transfer (GST) tax exemption (for gifts by donors more than one generation older than the beneficiary). Absent further guidance, donors would be required to use their lifetime gift and/or GST tax exclusion amount and file an annual gift tax return, even if no gift or GST tax is due.⁶

TAs will resemble 529 education savings accounts in this important respect: Contributions made to a TA before the year in which the beneficiary turns 18 (the growth period) will not be taxable to that beneficiary. However, any distribution will be taxable to the beneficiary age 18 or older at ordinary income rates, less any basis allocated to nondeductible contributions.⁷

Defining eligible investments

During the growth period, TAs may invest only in “eligible investments.” These include any U.S. mutual fund or exchange traded fund (ETF) that:

• Tracks a “qualified index”⁸
• Does not use leverage
• Does not have annual fees and expenses of more than 0.1% of the balance of the investment in the fund
• Meets any other criteria designated by the U.S. Treasury or the IRS

Eligible investments do not include money market funds or cash. However, the rules governing TAs identify limited circumstances when cash would qualify as an eligible investment, namely: when cash is received as a contribution; when it is distributed from an eligible investment; or when it results from the disposition of an eligible investment. In each case, this status applies only for the time “reasonably necessary” to invest the amount.

Weighing the pros and cons

Potential donors should consider how a TA might fit into their family’s overall financial planning. Benefits include the opportunity for tax-deferred growth beginning at an early age, the potential to take advantage of the $1,000 pilot contribution, and the possibility of adding employer contributions (if available).

Parents should bear in mind that the account beneficiary would have unilateral access to the account at age 18 (subject to early withdrawal penalties and ordinary income taxes). Parents may also need to weigh potential gift tax consequences of a TA contribution and consider whether funds might be better directed elsewhere (for example, to a 529 education savings account).

We can help

As you consider the new TAs and their potential role in your wealth planning, your J.P. Morgan team is prepared to work closely with you and your tax advisors to help determine which strategies best align with your financial goals. For more information, please contact your J.P. Morgan team.