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President Donald Trump’s One Big Beautiful Bill Act (OBBBA) officially became law on July 4, 2025. At least one of its provisions has piqued the interest of American parents and parents-to-be: the proposed “Trump Accounts,” funded with $1,000 for newborn children.
More affectionately known as the Baby Bonus Program, Trump Accounts are a “pro-family policy that will give millions of American children, regardless of background, a strong start at life,” according to a statement from the U.S. House Committee on Ways and Means.
The statement further indicates, “Trump Accounts will grow alongside the economic revival that President Trump’s policies will deliver.”
What does all this political jargon mean for you and your children?
Key Takeaways
- The One Big Beautiful Bill Act (OBBBA) provides a “Baby Bonus” for children born from 2025 through 2028.
- The federal government will contribute $1,000 to each qualifying child after their birth.
- Parents and employers can also contribute up to $5,000 per year.
- Contributions will be invested in a stock fund that the child can withdraw when they reach 18.
- Once a child turns 18, the account turns into an IRA, with special tax rules on how they can spend the money and potential penalties.
How Trump Accounts Will Work
American children born from 2025 through 2028 qualify for a Trump Account “Baby Bonus.” The account will be funded with an initial $1,000 deposit from the U.S. government. Additional family and employer contributions are permitted going forward, subject to annual limits.
The limit for family contributions is $5,000 per year. This figure is indexed for inflation, so it will adjust annually to keep pace with the economy. Businesses can contribute $2,500 for an employee’s child without increasing the employee’s taxable income. The money will be invested in a stock fund that follows market indexes.
“The funds will sit in a single, ultra-low-fee U.S. stock index fund and grow tax-deferred until your child reaches adulthood,” explains Joshua Mangoubi, CFA, founder and chief investment officer at Considerate Capital Wealth Management.
On the child’s 18th birthday, the account transitions into a traditional individual retirement account (IRA) where the money continues to grow until they reach retirement age. The child can use the money for college, a first home, childbirth, or certain other expenses, but they may face a 10% penalty on unapproved distributions before they reach age 59½. They will also need to pay taxes on any gains when they take a distribution.
Important
The money in a Trump Account can be used for a first-time home purchase, tuition, training programs, or business loans after the child reaches the required age, according to Rep. Julia Letlow.
How to Get Started and How to Get Paid
Parents can open a Trump Account for their newborn child at a bank or other financial institution. If not, the U.S. government will do it for them, provided that a tax return has been filed naming the child as a dependent. The child must have a Social Security number and be an American citizen. The initial $1,000 from the government will be deposited when the account has been established.
“The account is opened automatically once your baby gets a Social Security number,” Mangoubi says. “You’ll receive login details from the Treasury once the system is live: target mid-2026.”
Keep in mind that this is still a “pilot program” that has not yet left the ground. Nasdaq indicates that the groundwork is still “being laid.” It also warns that some details might change with the program’s official launch.
One such tweak might involve where and how the account money is invested. “It must be invested in diversified index funds,” says Evan Morgan, CPA and tax principal at Kaufman Rossin. “We believe that the IRS will need to issue a list of qualifying index funds.”
Pros and Cons of the Baby Bonus
As with all legislation, the OBBBA has its supporters and detractors, and the Trump Accounts come with some disadvantages.
The Urban Institute points out that the program may not be a significant boon for children in low-income families that struggle to make ends meet. The odds that they’ll also be able to invest up to $5,000 a year are most likely very minimal.
On the positive side, some commentators say that the initial U.S. government deposit is still $1,000 that the child wouldn’t have had otherwise. That $1,000 will have 18 years to grow with compound interest.
Then there are tax issues. You can claim a tax deduction for money you contribute to some accounts, such as a traditional IRA, but this isn’t the case with Trump Accounts. Earnings on the account are 100% taxable, based on the child’s income tax when they make a withdrawal, and a penalty tax might apply as well.
“If they use the money for anything other than college, job training, a first home, or starting a small business, the gains get hit with ordinary income tax plus a 10% penalty,” Mangoubi warns. “Use the money for one of these approved goals and the penalty disappears – but the tax doesn’t.”
It’s also not clear how the law affects contributions. “We believe that any contribution to the Trump Account by parents will go against the parents’ annual gift tax exclusion,” Morgan says, “but this has not been addressed yet.”
The Bottom Line
Through the OBBBA, Trump Accounts will provide your child with a $1,000 welcome-to-life gift that they otherwise would not have received. As with all legislation, however, there are a couple of hiccups that must be addressed so their parents can gain the most advantage from their contributions to the account. Children must use the money according to guidelines after age 18, or they can be hit with a tax penalty.
Keep an eye on this legislation as the program goes through its implementation stage. As with all investments, consult with a financial professional if you have unanswered questions.
