Trump accounts 2025: $1,000 for newborns and what parents need to know about taxes

Starting in July 2025, the government will put $1,000 into Trump accounts for all children born between 2025 and 2028 who have a Social Security number. Trump accounts are savings accounts meant to help children and families save money for future expenses as the child grows. Parents, grandparents, friends, or relatives can contribute up to $5,000 per year to these accounts, and employers can add up to half of that amount each year. Contributions can continue until the child turns 18, but the money usually cannot be accessed before then.

Gift tax rules

Contributions to Trump accounts do not qualify for the annual gift tax exclusion of $19,000 because the child cannot use the money immediately, as reported by USA Today. Because of this, anyone who contributes must file IRS Form 709, called a gift tax return, for every contribution—even small ones like $25. Filing Form 709 is complicated and not usually available on common tax platforms like TurboTax or Jackson Hewitt, so people may need an accountant.

Using an accountant to file could cost more than the contribution itself, making it expensive for families. Failing to file Form 709 can create audit risks with the IRS, even if no tax is owed. “The IRS can use an omission against taxpayers in an audit,” Waldman warned. Trump account contributions are considered “future interest” gifts, not “present interest,” because the child cannot access the money immediately.

Comparison with other accounts

This is different from 529 education savings plans, which are exempt from the gift tax because Congress explicitly said those contributions are “completed gifts”. The IRS or Treasury cannot fix this rule, so only Congress could change it, but no legislation has been proposed yet.

Americans can file Form 709 by printing and mailing it to the IRS or filing electronically through an authorized provider using the IRS’ Modernized e-File system, as cited in the report by USA Today. Expert Pon calls this situation “the gifting trap for Trump accounts” because of all the tax rules and paperwork.

Worth or waste?

Many financial advisers say Trump accounts are still worth it because of the free $1,000 from the government. “It’s hard not to take free money,” said Dan White, founder and CEO of Daniel A. White & Associates. However, experts warn that when it comes to personal contributions, people should compare other savings options like Roth IRAs or 529 plans, which may be better.

Pon says Trump accounts are a “waste of time” because there is no tax deduction for contributions, withdrawals are taxed, and early withdrawals before age 59½ have a 10% penalty, as stated by USA Today. Roth IRAs are better for kids with earned income because withdrawals are tax-free. 529 plans are better for education because withdrawals are tax-free and some states allow deductions or tax credits.

Trump account funds must be invested in low-cost index funds with fees of 0.1% or less, mostly in U.S. stocks, and cannot use leverage. For comparison, in 2024, average fees for equity mutual funds were 0.4% and 0.14% for index ETFs, which are higher than Trump account fees.

FAQs

Q1. What is a Trump account?

A Trump account is a savings account for children where the government puts $1,000 and families can add money until the child turns 18.

Q2. Do I need to pay taxes on Trump account contributions?

Yes, contributors must file IRS Form 709 for each contribution, even if no tax is owed.