Trump Accounts: The New Savings Vehicle and How You Can Navigate the Options

A new tool for long-term saving.

The One Big Beautiful Bill Act (OBBBA) has introduced a new type of individual savings account known as Trump Accounts, aimed at encouraging long-term saving, especially for children born between 2025 and 2028. While the initiative includes some attractive features, it also raises questions about the complexities of our current savings system. In this blog, we’ll explore the details of Trump Accounts, their advantages and disadvantages, and how you can leverage this new opportunity to maximize your family’s financial future.

What Are Trump Accounts?

Trump Accounts are part of the One Big Beautiful Bill Act, which includes provisions designed to incentivize saving for a child’s future. Parents, employers, and others can contribute to these accounts, with several unique characteristics that set them apart from other savings vehicles:

• Initial Government Deposit: Children born between 2025 and 2028 will receive a one-time $1,000 deposit from the federal government into their Trump Account. This can be claimed through a bank or qualified financial institution¹.
• Annual Contribution Limits: Up to $5,000 can be contributed annually to the account, with the $2,500 limit for employer contributions counting toward the total. This limit is adjusted for inflation starting in 2027¹.
• Tax-Deferred Growth: Like a Roth IRA, Trump Accounts grow tax-deferred, meaning the money inside the account can accumulate without being taxed until withdrawals begin. The funds can only be accessed once the child reaches age 18, and withdrawals are subject to the same rules as individual retirement accounts (IRAs).
• Qualified Investments: The funds must be invested in a qualified mutual fund, typically tracking major stock market indices like the S&P 500. Additionally, funds must not have annual fees greater than 0.1% of the balance, ensuring that the investment remains cost-efficient over time.

The Advantages of Trump Accounts

• Government Contribution Boost: The initial $1,000 government deposit serves as an excellent starting point for savings, and with employers contributing up to $2,500, Trump Accounts can quickly grow to provide a solid financial foundation for children, especially for college expenses or early adulthood financial independence.
• Tax-Deferred Growth: Similar to a Roth IRA, Trump Accounts offer tax-deferred growth on investments, allowing funds to accumulate without being taxed until withdrawal. This makes them an attractive option for long-term savings, especially when the child reaches adulthood and can start making tax-free withdrawals.
• Flexibility for Qualified Expenses: While withdrawals are subject to specific conditions, like IRAs, there are some notable exceptions, such as college tuition (unlimited withdrawals) and first-time home purchase (up to $10,000). This flexibility gives beneficiaries access to funds for key life milestones without penalty.

The Disadvantages of Trump Accounts

• Added Complexity: With numerous types of tax-advantaged accounts already available, adding another savings vehicle can create confusion. The Trump Account structure is similar to Roth IRAs, but with additional restrictions that could make it difficult for families to manage multiple accounts with overlapping rules.
• Limited Access: The primary downside to Trump Accounts is that withdrawals are only allowed after age 18. While this ensures that the funds can be used for long-term savings, it limits the flexibility for parents who may want to access the funds earlier for other purposes, like a child’s education or medical expenses.
• Potential Underuse: Given the restrictions and the limited contribution flexibility compared to other accounts (such as 529 college savings accounts), Trump Accounts may not become as popular as hoped. Families may prefer more established, flexible accounts that allow for broader use of funds.

How OneDigital Advisors Can Help

At OneDigital, we understand that financial planning is never one-size-fits-all, especially when new tools like Trump Accounts emerge. A OneDigital advisor can help you navigate the pros and cons of Trump Accounts in the context of your broader financial plan. Here’s how we can assist:

• Comprehensive Financial Planning: Trump Accounts are just one part of your child’s financial future. A OneDigital advisor will help you incorporate these accounts into a comprehensive financial plan, balancing contributions across multiple savings vehicles like 529 plans, IRAs, and other investment accounts.
• Maximizing Tax-Advantaged Savings: With tax-deferred growth and other benefits, Trump Accounts are a powerful tool. Our advisors can guide you on how to balance contributions between different accounts and how to structure them to make the most of tax advantages, ensuring your savings strategy is both efficient and effective.
• Future Withdrawals and Financial Goals: When your child turns 18, you’ll have access to these funds. A OneDigital advisor will be available to help you manage these assets, including understanding the rules surrounding withdrawals for educational expenses, first-time home purchases, or retirement planning.
• Ongoing Guidance: As tax laws and financial needs evolve, our advisors are here to ensure that your savings strategy remains aligned with your goals. Whether you need to adjust contributions, explore other investment options, or discuss the long-term strategy for your child's financial independence, we’re here for you.

Plan for the Future with OneDigital

While Trump Accounts introduce new opportunities for savings, they also come with their challenges. Understanding the nuances of this new tool, especially when combined with other savings vehicles, is essential to maximizing its potential. At OneDigital, we are committed to helping you build a financial plan that supports both immediate and long-term goals, making the most of every available opportunity.

To learn more about Trump Accounts and how they can fit into your family’s financial plan, schedule a consultation with a OneDigital advisor today. We’ll help you navigate the complexities of saving for the future with confidence and clarity.

 

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¹ https://taxfoundation.org/blog/trump-accounts-could-be-better/

Investment advice offered through OneDigital Investment Advisors LLC.
These materials are provided for informational and educational purposes only and do not constitute a recommendation to buy, sell, or hold any security, nor do they constitute legal, accounting, investment, or tax advice.

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