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Every Saturday, we open the mailbag, pour some strong coffee, and tackle the tax questions keeping America awake at 2 a.m. Here’s this week’s question:
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What are these “Trump Accounts” I keep hearing about for my kids?
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So, you’ve been hearing about “Trump Accounts” and wondering if Uncle Sam just opened a boutique bank for toddlers. We spent our afternoon diving into what the One Big Beautiful Bill Act (OBBBA) says about them so you don’t have to.
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Think of a Trump Account as a high-powered, custodial traditional IRA designed for anyone under age 18 who has a Social Security number. Every American child born between Jan. 1, 2025 and Dec. 31, 2028 is eligible for a one-time $1,000 “seed” deposit from the Treasury.
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To claim that $1,000 contribution for a baby born in 2025, you just need to check a box on the new IRS Form 4547 when you file your 2025 taxes this year. Once the doors open in 2026, families can contribute up to $5,000 per year total.
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Bosses can chip in, too! Parents’ employers can contribute up to $2,500 per year pre-tax, which is excluded from your taxable income. Until the child turns 18, the money must be invested in broad U.S. equity index funds with annual fees of 0.1 percent or less.
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These accounts grow tax-deferred, meaning you won’t owe taxes on earnings while the money stays put. Because there is no earned income requirement, your kid doesn’t need a summer job to start building a nest egg. Once they turn 18, the account converts into a traditional IRA, and they gain full control.
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While the law is official now, you can’t actually fund these with your own cash until July 4, 2026.
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Tax laws usually feel like they’re taking things away, so it’s a nice change of pace to see one that’s handing something back. Tucking away $1,000 for a newborn today is a way to use the “miracle of compound growth” to give them a head start before they even learn to ride a bike.
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Quick note: The White House projects that if parents max out contributions at $5,000 every year from birth, the account could be worth roughly $303,000 by the time the child turns 18. The $1,000 seed alone, left untouched, grows to around $6,000 by 18, based on historical S&P 500 averages. Either way, it’s a head start most of us didn’t get. (As always, past market performance is no guarantee of future results. We’re required to say that, but it’s also just true.)
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PS: If you have decided that reading about tax regulations on a weekend is a form of mild torture you no longer wish to endure, you can click here to opt out. We’ll miss you, but we won’t hold a grudge.
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