Trump Accounts Poised to Unlock a $2,500 Tax Break for Parents Who Contribute

A new U.S. Treasury Department proposal could potentially improve the appeal of Trump Accounts for working parents.

In a Tuesday announcement, the Treasury included guidance for employers that would let parents make annual contributions of up to $2,500 to Trump Accounts on a pre-tax basis via payroll deductions. The rule, which has not been finalized, also laid out a framework that would allow employers to make tax-free contributions of up to $2,500 annually on behalf of employees who open Trump Accounts in their children’s names.

Created by the One Big Beautiful Bill Act passed last year, Trump Accounts are tax-deferred investment accounts for kids, similar to custodial brokerage accounts and individual retirement accounts (IRAs), that allow investment earnings to grow, tax-free, until the funds are withdrawn.

Allowing pre-tax contributions is a change from previous Trump Account guidelines, which stipulated that account contributions (with a maximum of $5,000 annually) would come from after-tax dollars. Letting parents make pre-tax contributions addresses earlier criticisms that families would pay taxes twice, once before contributing the money and then again when the child withdraws the money — although the guidance issued so far doesn’t spell out how withdrawals from accounts that hold a mix of pre- and post-tax contributions will be taxed.

Roughly 7 million Trump Accounts have been opened, and officials said more than 50 companies so far have pledged to contribute to Trump Accounts on behalf of their employees.

This new rule could incentivize even more businesses to set up programs for their workers, says Sarah Adkisson, tax director in the national tax office of the Eisner Advisory Group.

“It might encourage more employers to participate in offering Trump Accounts,” she tells Money.

As it’s currently written, the proposed rule, which is accepting public comments until Sept. 25, indicates that employers could choose to offer either direct contributions or allow for pre-tax contributions by workers. So parents wanting to max out annual Trump Account contributions would only get a tax break on half of the $5,000 annual maximum.

As a result, this announcement might not change the math very much for some parents, Adkisson says. She suggests that parents consider Trump Accounts as part of a broader suite of savings and investing tools like 529 college savings accounts.

“It’s something that needs to be considered holistically as part of an overall plan,” she advises.

How do Trump Accounts work?

Trump Accounts were designed to give today's kids a head start building a nest egg to pay for college, buy a house or help fund their retirement. They are especially appealing for parents of babies born between 2025 and 2028; these children are eligible for a one-time, no-strings-attached $1,000 contribution from the government.

By law, money in Trump Accounts must be invested in funds that track a major index like the S&P 500. Although index funds are broadly recommended for low-cost, passive investing, experts caution that investing entirely in big American companies could leave account holders with inadequate diversification.

In February, a Vanguard paper noted that Trump Accounts exclude investments that can turbocharge growth, such as international and emerging market funds, as well as those that can mitigate risk, like target-date funds that rebalance as the intended withdrawal date nears.

Money invested in a Trump Account grows tax-free; it essentially converts to an IRA once the child turns 18, subject to the same withdrawal rules. Compounding growth over decades could grow even modest contributions significantly — although some have suggested that the Treasury Department's projections might have contained some overly-rosy assumptions.

But Adkisson says if you work for an employer that offers direct contributions to Trump Accounts, look at it like you would a 401(k) match — as free money, essentially.

“If you're being given money by your employer that’s not taxable, yes — that would be an important part of a calculation,” she says. In that case, she adds, “I don’t see a downside.”