Trump Accounts Get Simplified—But Less Generous—Tax Treatment in Senate Budget Bill
The proposed "Trump accounts"—a new tax-advantaged savings vehicle aimed at helping families invest for their children’s future—have been significantly revised in the Senate version of the federal budget bill. While the framework preserves some of the original features from the House proposal, it simplifies key rules and reduces certain tax advantages, bringing the accounts more in line with existing savings tools like IRAs.
The revised legislation is now on President Trump’s desk for signature. Advisors working with families interested in long-term intergenerational planning or education savings should note several important updates:
Modeled After Traditional IRAs
The most consequential shift in the Senate version is how the accounts are taxed. Instead of the preferential capital gains tax treatment originally proposed by the House for qualified withdrawals (such as those used for education or first-time home purchases), the Senate version now mirrors the treatment of traditional IRAs. That means contributions may be tax-deductible, but all withdrawals are taxed as ordinary income.
From a tax-efficiency perspective, this makes Trump accounts less competitive than other vehicles like 529 plans or Roth IRAs. For example, 529 plans allow tax-free growth and tax-free withdrawals when used for qualified education expenses. In addition, unused 529 funds can be rolled into a Roth IRA for the beneficiary under certain conditions—offering superior long-term flexibility.
For wealth advisors, this shift in structure may limit the appeal of Trump accounts for higher-income clients or those prioritizing tax alpha in education savings strategies.
Simplified Rules on Withdrawals and Age Limits
The Senate version eliminates several complex and restrictive age-based provisions that were part of the House bill. The House version required account holders to wait until age 18 to begin withdrawals, allowed only partial access before age 25, and mandated that any remaining funds be treated as fully withdrawn by age 31—triggering potential income tax liability.
Those constraints are gone. Under the Senate bill, withdrawals still can’t be made before age 18, but there’s no forced liquidation or age cap on usage. This increases flexibility and makes the accounts more attractive for long-term planning.
“This version drops some of the more cumbersome restrictions and brings the rules in line with familiar tax-deferred accounts,” says Alex Durante, senior economist at the Tax Foundation.
$1,000 Newborn Deposits Retained—No Parental SSN Required
The Senate preserved a core component of the Trump account framework: a four-year pilot program that automatically opens accounts for newborns and funds them with a $1,000 government deposit. Children born between January 1, 2025, and December 31, 2028, are eligible. Parents can also open accounts for existing children under 18.
Notably, the Senate version drops a House requirement that both parents have Social Security numbers—a move some GOP lawmakers have criticized. Senate Democrats had argued the SSN requirement violated procedural rules governing budget reconciliation.
This change could increase access for U.S. citizen children born to undocumented parents, creating potential public policy and planning implications in certain demographics. Advisors working with multicultural or immigrant families may find this especially relevant when fielding client questions.
Employer Contributions Now Allowed
In a new addition, the Senate bill permits employer contributions of up to $2,500 per year to an employee’s Trump account or that of a dependent. These contributions are excluded from the employee’s gross income, providing a tax-advantaged benefit akin to employer 401(k) matching.
For financial professionals who advise small businesses or HR departments, this opens the door to discussions around integrating Trump account contributions into total compensation strategies—though it's likely this provision will require IRS guidance for implementation and payroll integration.
Investment Options and Cost Controls
The bill limits eligible investments in Trump accounts to mutual funds and ETFs that track indexes composed primarily of U.S. equities. While this narrows the investment universe, it encourages low-cost, broad-based asset allocation.
To further protect savers, annual investment fees are capped at 0.1% of the account balance—potentially making these accounts more cost-effective than actively managed alternatives, though likely less flexible.
Contribution Limits and Timing
Annual contributions are capped at $5,000 per child—significantly lower than the unlimited contributions allowed in 529 plans or the higher thresholds in UGMA/UTMA custodial accounts. Contributions to Trump accounts also can’t begin until 12 months after the law’s effective date, which delays initial funding for early adopters.
For wealth advisors, that lag may be an operational detail to flag for clients eager to get started. It's also another data point in evaluating how Trump accounts fit alongside or compete with other tools already available.
Bottom Line for Advisors
The Senate version of the Trump account proposal trims back some of the more ambitious features of the House bill, but delivers a more straightforward and operationally feasible savings vehicle. The pivot to IRA-style taxation simplifies the design but reduces tax efficiency for common goals like education and home buying—potentially making it a secondary or complementary strategy rather than a core solution.
Advisors should carefully compare Trump accounts with 529 plans, Roth IRAs, and custodial accounts when advising parents on how best to structure long-term savings for children. For now, the revised Trump account structure offers limited tax alpha, modest funding caps, and less investment flexibility—but it may find its niche in employer benefits programs or as part of a diversified family wealth strategy.
Watch for further IRS guidance and regulatory clarity should the bill become law.
