Tax Planning: New developments for Trump accounts

By Ian Berger, JD
IRA Analyst at Ed Slott & Company

With contributions to Trump Accounts expected to begin in just a few months, there are some new developments to report.

As a reminder, Trump Accounts are tax-deferred savings accounts for children. They were established by Congress last July as part of the One Big Beautiful Bill Act (OBBBA). Several different kinds of contributions can be made to Trump Accounts:

• A one-time $1,000 contribution from the federal government for children born between 2025 and 2028.
• Individual contributions by parents, grandparents, or others on behalf of a child. For 2026, these contributions are limited to $5,000 and are available even for children who don’t qualify for the federal government contribution.
• Employer contributions for children of employees (or for teenage employees). The 2026 annual limit is $2,500, and these contributions count against the $5,000 individual contribution limit.
• Contributions by tax-exempt organizations and governments. These contributions have no annual dollar limit and don’t count against the $5,000 limit.
• Note that none of these contributions can be made before July 4, 2026, and the last three are only for children in the years before they reach age 18.

Trump Accounts are (non-Roth) traditional IRAs. However, until the year the child turns age 18, several special rules apply. For example, the accounts cannot be withdrawn for any reason. In addition, the funds must be invested in a low-cost mutual fund or ETF that tracks the S&P 500 index or another similar index that consists primarily of the stock of U.S. companies.

Here are the new developments:

• On December 2, 2025, the IRS issued Notice 2025-68, which answered some questions about how Trump Accounts will work. Among other things, the IRS said that a Trump Account can be established by filing Form 4547, either by itself or with the 2025 federal income tax return. The IRS has recently created a website, forms.trumpaccounts.gov, that allows Form 4547 to also be completed online. Parents or grandparents can also use Form 4547 to accept the $1,000 federal government contribution for qualifying children.

• Recently, some estate tax attorneys have said that individuals making contributions to the Trump Account will need to file Form 709 (the gift tax return) with the IRS. This will create an additional headache for parents or grandparents unless Congress or the IRS eases this requirement.

• For federal income tax purposes, all Trump Account contributions (except for individual contributions) are considered pre-tax IRA contributions. This means that taxation of the contributions and their earnings can be deferred until distribution. Individual contributions are considered after-tax IRA contributions, so only their earnings are taxed – but again not until distribution.

For state income tax purposes, most states appear to be following the federal tax treatment.

California is an exception. That state has announced that it won’t recognize Trump Accounts as IRA contributions, but instead will treat them as taxable accounts. This means that, in California, employer contributions and tax-exempt organization contributions will be taxed in the year they are made. Only the $1,000 federal government contribution is considered a pre-tax contribution in California (like under federal tax law). In addition, earnings on all types of Trump Accounts contributions will be taxed annually.

The bottom line: California residents who have Trump Accounts will be taxed differently for federal income tax purposes and for state tax purposes.

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