For medical professionals who own their own practice or have side-gig income from consulting, locums, or other avenues, planning long-term savings for a child’s retirement often comes down to one key factor: earned income. Unfortunately, for parents who do not own a business and/or cannot hire their child in their business, there is no easy way to save for their retirement without their child having earned income. The IRS requires that contributions to a retirement account like a Roth IRA be based on a person’s earned compensation. For most children, this means money earned from a part-time job, babysitting, or other paid work. Passive income from owning rentals, for example, or portfolio income, such as dividends or interest, does not count as earned income.
However, the One Big Beautiful Bill Act (OBBBA) updates the law to allow parents with children who do not have earned income during the year to contribute to a new type of retirement plan. The OBBBA created a new retirement plan called “Trump Account”. Trump Accounts function like traditional Individual Retirement Accounts (IRAs) with a few twists for under-18 beneficiaries. Let’s outline how the pilot program works for newborns, the annual limits and timing, the investment restrictions, what changes at age 18, and where this fits alongside 529s, custodial accounts, and trusts.
OBBBA Trump Accounts: How They Work
It is important to remember that, as of the date of this article, not all details have been revealed about these new accounts and the government will provide more details at a future date. Under the One Big Beautiful Bill Act (OBBBA), Trump Accounts are set up to function like traditional IRAs with several special rules for beneficiaries under age 18.
Pilot Program: Free Trump Account Money for Newborns
For the pilot program, a parent can file an income tax election for a newborn who is a U.S. citizen and born in 2025–2028. A Social Security number for the newborn is required when you make the election.
Once the election is filed, the federal government enrolls the child in the pilot program and credits the child’s Trump Account with $1,000. That $1,000 serves as the initial funding for the account.
You may begin contributing up to $5,000 per year starting July 4, 2026. The IRS will publish procedures that explain how to make the election. If the child is born in the initial eligible window, contributions of up to $5,000 can start on July 4, 2026, in addition to the $1,000 pilot funding.
How Trump Accounts Operate
Starting July 4, 2026, you and others, such as a grandparent, may contribute up to a combined $5,000 each year, with inflation adjustments beginning in 2028, through the year the child turns 18. So that means a limit of $5,000 per child, no matter how many people contribute to the account.
Rules Before Age 18
Contributions made before the child reaches 18 are not deductible. But the money in the account grows tax-deferred.
The $1,000 pilot amount does not count against the $5,000 annual limit. After 2026, up to $5,000 per year (adjusted for inflation starting in 2028) can be contributed until the year the child turns 18.
The child must have a Social Security number to qualify for these under-18 contributions. Withdrawals are prohibited until the calendar year in which the child turns 18. During that time, the balance can grow federal-income-tax-deferred, meaning no federal income tax is incurred while the money remains in the account.
Rules at 18 and Beyond
In the year the child turns 18, the account becomes a standard traditional IRA and follows the usual contribution and distribution rules. From that year forward, any additional contributions to the traditional IRA require earned income.
Distributions from that point follow the rules for traditional IRAs. A taxable distribution taken before age 59 1/2 generally results in a 10 percent early withdrawal penalty unless an exception applies.
Tax basis equals all non-deductible amounts contributed before the account became a traditional IRA, including those within the $5,000 annual limit with inflation adjustments, plus any non-deductible contributions made after it became a traditional IRA. Those are considered post-tax contributions.
The $1,000 pilot funding, any tax-free employer contributions, and any tax-free qualified general contributions do not increase basis and are considered pre-tax contributions.
As a side note, do not neglect keeping track of your post-tax contributions. When your child is ready to withdraw money from their IRA, you do not want them to be double-taxed on the post-tax principal.
Allowed Investments Before Age 18
Until the year the child turns 18, the account is limited to eligible investments. Eligible investments are mutual funds or ETFs that track a qualified index, avoid leverage, cap fees at 0.1 percent of assets, and meet any additional requirements the IRS sets.
A qualified index can be the S&P 500 or another index made up mainly of U.S. equities with regulated futures trading on a qualified board or exchange; it may be market-cap based, but it cannot be industry specific or sector specific.
Employer Trump Account Contributions
An employer can set up a Trump Account contribution program. Beginning July 4, 2026, an employer can contribute up to $2,500 per year, with inflation adjustments starting in 2028, to a Trump Account for an eligible employee under 18 or for an employee’s eligible dependent under 18.
Employer funding counts toward the $5,000 yearly limit. The amounts are tax-free to the employee and are a tax deduction to the business as an employee welfare benefit.
A Trump Account contribution program has to be a written plan for the exclusive benefit of employees to make contributions to the Trump Accounts of under-age-18 employees or under-age-18 dependents. The plan’s contributions may not favor highly compensated employees or their dependents.
Planning Opportunities for Business Owners
This is a great planning tool for businesses with only owner-employees (this includes children and spouses) because it will allow them to deduct the $2,500 contribution as a business deduction. The remaining $2,500 can be contributed personally by the owner/parent.
It is important to note that the current information available about the Tump Account is still vague. It is our understanding that this is a per-employee benefit and not a per-child benefit. For example, even if an employee has three children, the maximum contribution an employer can make to an employee is $2,500, not $7,500 ($2,500 multiplied by three children).
Also, don’t forget that if you have hired your children, they can still contribute to their Roth IRA based on the income they earned through your business on top of contributions to their Trump Account. For example, if you are a single-owner/employee business, if you pay your child $7,500 for work in your business, they can contribute that $7,500 to their Roth IRA (the projected contribution limit as of the writing on this article) based on that earned income, your business can contribute $2,500 to the child’ Trump Account and receive a business deduction, and you can personally put in another $2,500 into your child’s trump account. That is $12,500 put away for your child’s retirement each year!
Trump Account Outcomes and Comparisons
This new account can be a real game-changer for legacy planning and setting your children up for the future. To illustrate, let’s calculate the future value of the Trump account with the following parameters, assuming no adjustments to contribution amounts for inflation:
- $1,000 initial government seed as a newborn,
- $5,000 in annual contributions from age 0 to 17,
- An additional $7,500 in annual contributions from age 7 to 17
Assuming a 5% annual return on a tax-deferred basis, the balance would be approximately $261,980 by the time your child turns 18.
If the funds then remain invested in the traditional IRA for 42 more years, to age 60, and the return stays at 5 percent on a tax-deferred basis, the $261,980 could grow to a little over $2 million!
Better yet, when your child turns 18, they should convert their estimated $261,980 Trump Account from traditional IRA status to Roth status. In general, an 18-year-old will have a lower or zero tax bracket. You can complete the Roth conversion over multiple years to ensure the lowest tax bracket.
While there are other child-friendly savings vehicles, they don’t have the same growth power as the Trump Account.
529 Plans: You can also use a Section 529 college savings plan or a Coverdell Education Savings Account, but to receive their tax benefits, the funds must be used for qualified education expenses.
Custodial Accounts and Trusts: A custodial account lacks tax deferral, and the income may be subject to the kiddie tax, possibly until age 24. A trust likewise offers no tax-deferral advantage; the kiddie tax can apply. Undistributed income is taxed under the less favorable federal income tax rules for trusts.
Key Takeaways
For medical professionals and other business owners, the Trump Account represents a powerful new tool in the financial planning toolkit. Historically, a significant barrier to early retirement savings for children has been the earned income requirement for traditional retirement accounts. The OBBBA’s Trump Accounts shatter that barrier, offering a direct path to wealth-building from a child’s earliest years, regardless of their employment status.
The combination of the initial government seed money, tax-deferred growth, and the ability for both parents and employers to contribute creates a unique and robust savings vehicle. For those with a medical practice or a side business, the opportunity to make tax-deductible employer contributions while personally contributing to the same account offers a highly effective way to reduce the family’s overall tax burden while simultaneously supercharging a child’s financial future.
While other savings plans like 529s, custodial accounts, and trusts serve their own purposes, none combine the unique advantages of the Trump Account: free government seed money, tax-deferred growth without the kiddie tax, and the flexibility to be used for any purpose in adulthood.The potential for a six-figure balance at age 18, which could then grow into a seven-figure retirement nest egg, is a compelling proposition that cannot be ignored.
As a brand-new provision, some of the finer details of the Trump Account still await clarification from the IRS. However, the core structure is clear and provides a new and exciting opportunity. By leveraging the Trump Account, business-owning medical professionals can do more than just plan for their children’s future; they can help build a foundation for long-term financial independence that will benefit generations to come.
Implementation matters as much as understanding the rules. Our team at Cerebral Tax Advisors helps medical professionals apply these provisions correctly, avoid common pitfalls, and integrate them into a broader plan. If that would be helpful, schedule a free Tax Discovery Session.