The Senate has moved forward with a proposal (PDF File) to create a new tax-advantaged savings account called the “Trump Account,” intended to help families with young children save for education, small business ownership, or first-time home purchases. 

Previously called MAGA Accounts, the renamed proposal includes a $1,000 pilot contribution from the federal government for eligible newborns.

However, while the $1,000 baby bonus is a nice “gift”, the account itself is not as beneficial as existing accounts, such as a 529 plan or UGMA/UTMA account.

How A Trump Account Is Structured

Trump Accounts resemble a hybrid of 529 plans and custodial investment accounts. They can only be opened for children under age 8, and only one account per child is permitted. Parents or guardians can contribute up to $5,000 per year in after-tax dollars (which would rise with inflation), but contributions from government sources or qualified rollovers do not count against that cap.

Contributions must be made in cash and cannot begin until 2026.

Unlike a 529 plan, investment options are limited to regulated U.S. equity index funds with low fees and no leverage. These accounts are non-forfeitable and cannot be accessed until the beneficiary reaches age 18. Between ages 18 and 25, withdrawals are capped at 50% of the value at age 18, with exceptions for qualified education expenses, qualified credential programs, small business costs, and first-time home purchases.

Trump Account earnings used for qualified expenses are taxed as capital gains. Contributions themselves are not tax-deductible, but the accounts grow tax-free. Any other distributions are fully taxable as income and, for those under age 30, subject to an extra 10% penalty.

$1,000 Baby Bonus Pilot Program

To launch the program, the bill authorizes the Department of the Treasury to establish accounts and automatically deposit $1,000 for every child born between January 1, 2025, and January 1, 2029, provided they are U.S. citizens. The Treasury will use tax return data to identify qualifying children and notify families, who can opt out if desired.

If no account exists for a qualifying child, the Treasury will open one and assign a default trustee. 

This mirrors some aspects of the Obama-era “MyRA” program but introduces stricter oversight and a focus on long-term investing.

What Happens Next

This proposal was nearly identical in the House and Senate Big Beautiful Bill texts – which means it’s highly likely to make it to the final bill and be signed into law.

The account itself isn’t that appealing. A 529 plan or UGMA would do a better job without creating a new account type that families would have to manage and track. However, the $1,000 baby bonus is nice – and we’ll never tell anyone to pass up free money.

If this gets signed into law, the first accounts may be opened later this year.

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