Trump Savings Accounts for Newborns | How do they work?

October, 20 2025 by Karen Thomas-Brandt, EA

They say that the estimated cost of raising a child in the U.S. (up to age 18) can range between $298,000 and over $375,000 for middle-income families, depending on state, family income, and lifestyle choices. Whoa! That sounds downright impossible! But starting in 2025, there could be help coming for qualifying new parents.
 

Before Legislation Passed

Prior to the passing of the Big Beautiful Bill (BBB), there was no Trump Savings Account for Newborns. Of course, parents could open an account on their own, but no amounts were government funded.
 

Account options before the BBB

• Custodial Account (UGMA/UTMA): In this setup, the UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) account is in the child's name but is managed by the adult (the custodian) until the child reaches a specific age (18 or 21, depending on the state).  
• Joint Account: This could be a checking or savings account that gives the adult (often a parent) and child access to the funds, allowing the adult to supervise and control the account.  
• 529 College Savings Plan: This is a good option for long-term savings for future education expenses.  

What the Rule Is Now

The BBB created what some are calling the “Trump Savings Account for Newborns.” This account is for any qualifying child born between January 1, 2025 and December 31, 2028 and will be funded by the government with a one-time deposit of $1,000. To qualify, the child needs to be a U.S. citizen and have a Social Security number. 

In addition to the initial $1,000 of government funding, parents may also contribute up to $5,000 annually until the child turns 18. An employer may contribute up to $2,500 toward the $5,000 limit. However, no contributions can be made until July 2026.
 

How does the newborn account work?

• Contributions to the account are post-tax, so these funds will not be taxed upon withdrawal.  
• Earnings on the contributions will be taxable upon withdrawal. 
• In general, no funds may be withdrawn until the child turns 18, after which time the account works like a traditional Individual Retirement Account (IRA). 

Are there any penalties for taking money out of the newborn account?

Upon turning 18, the account owner can withdraw funds penalty-free if used to cover education expenses or a first-time home purchase. If the funds are left in the account until the owner turns 59 ½, the early-withdrawal penalties go away. As with a traditional IRA, if the funds are withdrawn before 59 ½, there is a 10% early-withdrawal penalty on the federal return (if not used for education expenses or a first-time home purchase, as stated above). Individual states may have additional early-withdrawal penalties as well.
 

So, what’s the benefit here?

The new law requires that the Trump Account funds be invested in low-cost stock index funds, which mirror the performance of an index, such as the S&P 500. 

So, for example, if you receive the initial investment of $1,000, and you leave it alone and never add to it, a low-cost stock index fund investment for 18 years could yield approximately $3,200 to $4,000, depending on the average annual rate of return (the actual amount will vary based on market performance and the specific index fund chosen). 

Alternatively, a single $1,000 investment in a low-cost stock index fund for 60 years could grow to approximately $38,000 to $160,000 or more (again, depending on market performance and the specific index fund chosen). 

Either scenario seems like a win!

 

What do I need to do to get an account for my newborn?

The details are still being worked out, but it is believed that, in order to claim an account, parents will probably have to check a box on a tax form testifying that they are new parents. 

Raising a child is expensive, but these new “newborn accounts” could help to ease that burden for parents.