The IRS has proposed new rules governing how money in Trump Accounts for children can be invested, including strict limits on fund fees, leverage and the types of stock indexes the investments can track.
The Department of the Treasury and Internal Revenue Service issued the proposed regulations on August 20 as part of the ongoing rollout of Trump Accounts, a new type of traditional individual retirement account created for eligible children under the Working Families Tax Cuts.
During a child’s account “growth period,” families won’t have unlimited freedom to choose stocks, cryptocurrencies or other investments. Instead, money generally must remain in qualifying low-cost mutual funds or exchange-traded funds, or ETFs, that meet federal requirements.
The IRS says the restrictions are designed to encourage investment in low-fee funds that can potentially compound over many years.
What Investments Would Be Allowed in a Trump Account?
Under the proposed rules, an eligible investment generally must be a mutual fund or ETF that tracks an equity index composed primarily of U.S. companies.
The IRS points to an index such as the S&P 500 as an example.
The fund also cannot use leverage and generally cannot charge annual fees and expenses exceeding 0.1% of the amount invested in the fund.
That fee limit is equivalent to no more than about $1 annually for every $1,000 invested, although the actual dollar amount would change as the account balance changes.
The rules therefore steer Trump Accounts during childhood toward relatively low-cost, index-based investments rather than allowing families to select virtually any security they want.
What Happens If Parents Don’t Choose an Investment?
Families also won’t necessarily have to select a fund themselves.
According to the IRS announcement on the proposed investment regulations, if the beneficiary doesn’t select an eligible investment from the choices offered by the account trustee, the money will automatically be placed in an eligible investment selected by that trustee during the growth period.
The proposed regulations include procedures trustees would use to determine whether an investment meets the government’s requirements and to ensure Trump Account money remains invested appropriately.
Those restrictions don’t last forever.
The growth period begins when the beneficiary’s initial Trump Account is established and ends on December 31 of the calendar year in which the beneficiary turns 17. After that period ends, the special eligible-investment restrictions no longer apply, and most traditional IRA rules generally take over.
Some Children Can Receive a $1,000 Federal Contribution
A separate pilot program provides a one-time $1,000 Treasury contribution for certain children.
The IRS guidance on the Trump Account pilot program says an eligible child must be a U.S. citizen with a valid Social Security number who was born in 2025, 2026, 2027 or 2028, and an election must be made for the child.
Parents and other qualifying individuals can make the election using Form 4547, Trump Account Election(s).
The August IRS announcement says parents, guardians and other authorized individuals can use the IRS Individual Online Account to complete Form 4547 for a child with a Social Security number, provided the election is made before the calendar year in which the child turns 18.
For an eligible child born during the pilot-program years, the person making the election can check the applicable box on Form 4547 to request the $1,000 contribution.
Families Can Put Additional Money Into the Account
The $1,000 pilot contribution isn’t necessarily the only money that can go into a Trump Account.
IRS guidance says ordinary contributions from sources such as family members and friends generally count toward a $5,000 annual contribution limit during the growth period, with that limit subject to cost-of-living adjustments after 2027.
The $1,000 federal pilot contribution doesn’t count against that $5,000 limit.
Certain other types of contributions receive different treatment as well. For example, the IRS issued separate proposed regulations in August covering employers that choose to contribute to Trump Accounts for employees or their dependents.
The IRS employer-contribution guidance says qualifying employer contributions can be as much as $2,500 annually during the growth period, subject to the applicable rules and limits.
Parents Should Understand the Withdrawal Restrictions
Families should also understand that a Trump Account isn’t designed to function like an ordinary savings account for childhood expenses.
During the growth period, distributions generally aren’t allowed except for limited circumstances identified by the IRS, including certain rollovers, qualified rollovers to an ABLE account at age 17, distributions of excess contributions and distributions following the beneficiary’s death.
After the growth period, most traditional IRA rules generally apply.
That means distributions can potentially be subject to the 10% additional tax on early withdrawals unless an exception applies. IRS guidance identifies qualified higher-education expenses and certain first-home purchases as examples of situations in which an exception may be available.
Parents considering the account should therefore distinguish between money they want to invest for the child’s longer-term future and money they may need for ordinary expenses while the child is still growing up.
The Investment Rules Aren’t Final Yet
The August 20 regulations are proposed, which means the details aren’t being presented as final regulations yet.
Treasury and the IRS developed the proposal after considering stakeholder comments submitted in response to Notice 2025-68, which was issued in December 2025.
The agencies are now requesting another round of public feedback.
Comments on the proposed eligible-investment regulations are due by October 20, 2026, with submission instructions contained in the proposed regulations.
The IRS says the regulations generally are proposed to apply to tax years beginning on or after January 1, 2026.
For families considering a Trump Account, the proposal provides a clearer picture of how the accounts are intended to operate during childhood: money generally would be directed into low-cost, primarily U.S. stock-index mutual funds or ETFs, while access to the funds would remain restricted until the special childhood growth period ends.
What to Read Next
IRS Is Shutting Down the FIRE Filing System Nov. 19 — What Businesses Need to Do Before 2027
What Would Break Your Retirement Plan First?
IRS Keeps Interest Rate at 7% for Taxpayers Who Owe Money in Late 2026
Amanda Blankenship is the Chief Editor for District Media. With a BA in journalism from Wingate University, she frequently writes for a handful of websites and loves to share her own personal finance story with others. When she isn’t typing away at her desk, she enjoys spending time with her daughter, son, husband, and dog. During her free time, you’re likely to find her with her nose in a book, hiking, or playing RPG video games.
Leave a Reply