Among the pages of the Republican tax bill passed into law in July is something called a Trump Account, a way to invest for children. The IRS has issued its guidance about Trump Accounts, and we now know the details of these accounts and how they will be taxed.

One exciting aspect of the Trump Accounts is that they will consist of free money (with some caveats) for many American families. The government will put $1,000 into an account for each child born between January 1, 2025, and December 31, 2028, who is an American citizen with a Social Security number.
In addition, a number of billionaires have pledged to put varying amounts of money into these accounts for specific groups of children. This means some children will have more money in their investment accounts than the base $1,000.
Free money is definitely good, and experts have uniformly said that signing up newborns (and perhaps older children) for a Trump Account is a good idea. But when it comes to making investment portfolios for your children and putting in more money for them, there are some disadvantages to Trump Accounts, and it is worthwhile to know what they are.
This article is for informational purposes; a tax expert should be consulted before deciding on investments.

Investment in what?
The money in Trump Accounts must be invested in index funds in American equities and not in sector-specific indexes. In other words, the money will go into either mutual funds or exchange-traded funds that track something like the S&P 500 or a similarly broad stock index.
The money cannot be invested in index funds of foreign stocks or in bonds.

How to sign up
The $1,000 and any other money won’t automatically be put into accounts for children. Instead, you need to sign up for an account for your child by filing an IRS Form 4547. The forms aren’t ready yet, but the government says they should be available in 2026, and at that time, it should be possible to enroll online.

Free money?
One of the biggest draws of these accounts is that the government and some billionaires will be putting money into them.
First is the government, which will be putting in $1,000 for children born between January 1, 2025, and at least the end of 2028. (It would require further legislation to extend the opportunity to children born afterward.)
Even children who were born before January 1, 2025, and are no older than ten will have $250 deposited in their Trump Accounts through a donation from tech billionaire Michael Dell.
Furthermore, kids in Connecticut who are less than ten years old and live in the poorest ZIP codes will get an additional $250 in their accounts through a donation from mega-investor Ray Dalio.
The Trump administration has thrown down a challenge for other billionaires to make similar donations.
(Those who are on a government assistance plan that has an asset limit do not need to worry, according to the latest guidance. The free money placed in the accounts by the government and others does not count toward those assets. However, when the money is withdrawn, it will count as income for the owner of the account—the child, who by then will be an adult.)
Beyond the money given by the government and billionaires, parents and others can put up to $5,000 in an account each year before the child turns 18.

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