How the new Trump accounts for kids works

Overview of Trump Accounts - New tax legislation creates tax-advantaged investment accounts for every child born from the beginning of 2025 through the end of 2028 [1] - These accounts are designed to provide a savings vehicle for families interested in creating savings accounts for their children [2] Contribution Limits and Eligibility - Eligible newborns receive a $1,000 contribution from the government, and other children under 18 may also be eligible [3] - Parents can contribute up to $5,000, and employers can contribute up to $2,500 to these accounts [5] Access and Usage of Funds - Individuals can access these funds at age 18 and must withdraw all funds by age 25 [7] - Funds can be used for qualified expenses such as a first home purchase or educational purposes, and some health-related expenses [7][8] Tax Implications - Contributions are made after tax, and withdrawals can be taxed at the capital gains rate [9] - Unlike Roth-style accounts (after-tax contributions, tax-free withdrawals) or traditional IRAs (pre-tax contributions, taxed withdrawals), Trump accounts have tax implications on both ends [10] Comparison to Other Savings Vehicles - Families should consider Trump accounts versus educational savings accounts, HSAs, 529s, and IRAs [4][8] - The program's $1,000 contribution raises concerns about becoming a broader new entitlement program [6] Potential Drawbacks - Tax industry notes that families may pay tax on both contributions and withdrawals, reducing the tax advantage compared to other retirement accounts [11] - Tax industry suggests policymakers should have promoted a universal savings account instead of adding to the existing complex system [12]