If you had a baby in 2025, the federal government is offering to put $1,000 into an investment account with your child’s name on it. Not a coupon or a tax credit you chase down at filing time, but a real account, invested in the stock market, that can compound for eighteen years before anyone can touch it. It is called a Trump Account. Families can start the paperwork now, and the accounts begin accepting contributions this July.

What a Trump Account actually is

Trump Accounts were created by the One Big Beautiful Bill Act, the tax law signed on July 4, 2025, and they live in a brand new corner of the tax code, Section 530A. The simplest way to picture one is a starter retirement account for a child: money goes in, gets invested in the U.S. stock market, and grows without being taxed along the way. Once the child turns 18, most traditional IRA rules generally apply, though the account stays a Trump Account unless it is moved or handled differently under IRS guidance.

The $1,000 is real, but you have to claim it

The federal seed is set aside for any child who is a U.S. citizen, has a Social Security number, and was born between January 1, 2025 and December 31, 2028. One detail trips people up: the Social Security requirement is on the child, not the parents, so a family is not shut out because an adult lacks one. The money is not deposited automatically, though. A parent or guardian has to claim it by filing a short IRS election, Form 4547, or by registering the child at trumpaccounts.gov. Skip that step and the $1,000 never shows up. You can file the election now, even though no money can be added until the accounts open on July 4, 2026, and the seed sits on top of your yearly contribution room, so claiming it costs you nothing.

How much can go in, and who can add it

Once an account is open, up to $5,000 a year can flow into it from just about anyone: parents, grandparents, even family friends. That limit is locked at $5,000 for 2026 and 2027, then rises with inflation. Here is the newer wrinkle for working parents. Employers can now put in up to $2,500 of that $5,000 directly, and it does not count as taxable income to the employee, similar to an employer-funded savings benefit. A few outside gifts stack on top of the cap entirely, including a $6.25 billion pledge from the Dell family foundation that adds $250 to accounts for children in lower-income ZIP codes.

The stock market grows the money, but the IRS taxes the gains like a paycheck, not a long-term investment, when it finally comes out.

Where the catch hides: how it is taxed

The investing side is deliberately plain. The law requires the money to sit in a low-fee fund, no more than 0.1% in annual costs, that tracks a broad U.S. stock index like the S&P 500. There is no day-trading and no borrowing to chase bigger returns. The tax side is where families need to pay attention. You do not get a deduction for what you put in, the account grows tax-deferred, and when the money finally comes out it is taxed like a traditional IRA. That means the gains are taxed as ordinary income, at whatever rate your grown child pays on a paycheck, and not at the lower long-term capital-gains rate you might expect from a stock investment. Take earnings out before age 59½ and a 10% penalty can apply on top.

When your child can actually use it

Nobody can take money out before January 1 of the year the child turns 18, with narrow exceptions like the account holder’s death. After that, most traditional IRA rules apply, which steers the money toward retirement rather than a first car. That long lock is the point: it is built to compound quietly for two decades, not to be raided at graduation.

So is it worth opening one?

For a child born in the eligible window, claiming the $1,000 is close to a no-brainer: it is free and it grows for years. Beyond the seed, a Trump Account is one good option among several. If college is the goal, a 529 plan still offers tax-free withdrawals for tuition. If your child has a part-time job, a custodial Roth IRA and its tax-free growth may come out ahead. The Trump Account’s edge is that it needs no earned income and arrives with that federal head start, and if your employer offers the $2,500, it is worth asking about, the same way you would ask about a retirement match. These are not strictly either-or choices, and many families pair a Trump Account for the early head start with a 529 for school, where withdrawals for qualified education costs can come out tax-free.

What employers should decide before offering Trump Account contributions

The employer contribution is one of the more interesting pieces of this law, and it comes with real setup work. Under Section 128 of the tax code, a company can contribute up to $2,500 per employee each year, and that money can go into the employee’s own Trump Account or into a dependent’s account. The $2,500 is a per-employee figure, not a per-child one, so an employee with three children still shares a single $2,500 limit. It is left out of the employee’s taxable income, and it counts toward the same $5,000 annual cap that covers family contributions, while the $1,000 federal pilot deposit sits outside that cap. Because employer money and post-tax family money can be treated differently for tax purposes later, payroll needs to track them as separate buckets rather than one running total.

The first decision is how to fund the benefit: a direct company contribution, a salary-reduction arrangement, plain post-tax payroll deductions, or some mix. If you route a dependent’s contributions through a Section 125 cafeteria plan, that takes plan-document updates and payroll coordination. Section 128 also calls for a written program, and rules on nondiscrimination, eligibility, employee notices, and benefit statements may apply, much like other workplace benefits. On the ERISA question, recent DOL guidance (Technical Release 2026-02) indicates that contributions during the growth period generally will not create an ERISA-covered plan as long as participation is voluntary and the employer stays within the stated conditions, such as not steering the investments or presenting the program as its own retirement plan. That is helpful, but it is not automatic, so confirm your design with advisors rather than assume it.

Ryan Joyce

Vice President of Client Partnerships, VertiSource HR

Ryan writes for employers and families about benefits, savings, and the tax rules that quietly shape both.