The tax loophole that turns a Trump Account into tax-free millions — do you know how to exploit it?
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Trump Accounts officially went live this summer, giving millions of American children a new way to start investing before they’re old enough to earn their first paycheck.
Created under President Donald Trump’s 2025 One Big Beautiful Bill Act, the accounts began accepting contributions on July 4. Parents, guardians and other authorized adults can open one for any child under the age of 18 with a Social Security number, while U.S. citizen children born from 2025 through 2028 are also eligible for a one-time $1,000 contribution from the federal government (1).
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Families and employers can generally contribute up to $5,000 per year, including as much as $2,500 from an employer. During the child’s early years, the money must be invested in low-cost mutual funds or ETFs that track U.S. stock indexes, giving it years — potentially decades — to compound (2).
But not everyone is convinced Trump Accounts are the best place to put additional money.
Personal finance personality Dave Ramsey has called the accounts a “political stunt” and said they’re “not as revolutionary as the original Roth.” His concerns include their limited investment choices, restrictions on accessing the money before adulthood and, perhaps most importantly, their tax treatment.
Unlike a Roth IRA, a Trump Account isn’t automatically tax-free. Family contributions are generally made with after-tax dollars, but investment earnings grow tax-deferred. Government and employer contributions can also be taxable when the money eventually comes out.
There is, however, a way to potentially turn that early head start into decades of tax-free growth. The key is what happens when the child reaches adulthood.
How a Trump Account could become a tax-free fortune
Under IRS guidance, the special rules governing Trump Accounts largely disappear beginning Jan. 1 of the year the account holder turns 18. From that point, traditional IRA rules generally apply and the money can be transferred or rolled into another eligible retirement account (2).
