Trump Accounts: OBBBA's New Kids' Savings Account, and the $2,500 a Freelancer's S-Corp Can Add Tax-Free

Published: September 14, 2026 · Reading time: 12 min

TL;DR: The One Big Beautiful Bill Act added IRC §530A, creating "Trump accounts" — a locked, traditional-IRA-style account for a U.S. citizen child under 18. Kids born after December 31, 2024 and before January 1, 2029 get a one-time $1,000 federal seed payment under §6434 once a parent makes the election. Families can add up to $5,000/year (indexed after 2027) in non-deductible contributions, and — the part most freelancers reading this will care about — §128 separately lets an employer, including a freelancer's own S-corp, exclude up to $2,500/year from an employee's wages for contributions to that employee's or their dependent's Trump account. Money must sit in a low-cost (≤0.1% expense ratio), unleveraged U.S. equity index fund, can't be touched before the year the beneficiary turns 18 (with narrow exceptions), and no contribution of any kind is accepted before July 4, 2026 — 12 months after the law's July 4, 2025 enactment. It's taxed like a traditional IRA on the way out, not tax-free like a Roth.

If you've already elected S-corp status for your freelance business — our guide to that decision covers when it's worth it — you're an employee of your own company for payroll purposes. That fact, combined with a brand-new Code section most freelancers haven't heard of yet, opens up a small but real tax-free way to fund a savings account for your kid. Here's exactly how it works, verified against the enacted statutory text rather than summarized from it.

What a Trump Account Actually Is

§530A(a) states the general rule plainly: "a Trump account shall be treated for purposes of this title in the same manner as an individual retirement account under section 408(a)" — except where the rest of the section says otherwise. It is explicitly not a Roth IRA (§530A(b)(1)).

To qualify as a Trump account, the account must:

• Be created either by the IRS itself on behalf of an eligible individual, or by someone else in the U.S. for the exclusive benefit of an individual under 18, funded by a rollover from another Trump account
• Be designated as a Trump account at the time it's established
• Have a governing instrument that (1) accepts no contribution before the date 12 months after enactment, or in excess of the annual cap; (2) allows no distribution before the beneficiary turns 18, with the exceptions below; and (3) invests in nothing but an "eligible investment" before the beneficiary turns 18

The eligible individual for account creation itself is broader than for the $1,000 payment below: any child under 18 with a Social Security number, for whom either the IRS or another person makes the establishing election. §530A itself was added by Public Law 119-21, §70204(a)(1), 139 Stat. 179, and the whole regime — this section, the employer exclusion, and the federal payment — applies to taxable years beginning after December 31, 2025.

The One-Time $1,000 Federal Payment (§6434)

This is the part that made headlines, and it's narrower than the account itself. Under §6434(a), an eligible child is treated as making a $1,000 payment against their own tax liability, which the Secretary then pays directly into their Trump account — not to the parent's bank account.

An eligible child under §6434(c) is a qualifying child (§152(c) — the Child Tax Credit's own test) who:

1. Was born after December 31, 2024 and before January 1, 2029
2. Has had no prior election made for them by anyone
3. Is a United States citizen

The election requires the child's Social Security number, and the payment is explicitly protected from offset against other federal debts (§6434(f)) — it can't be seized to cover a past-due tax bill or other government claim. One more precise detail: §6434(g) says interest under §6611(a) on this payment "shall not begin before January 1, 2028," meaning even though the payment is effective for 2026 returns, it isn't accruing interest as an overpayment before that date.

This is a birth-year-gated pilot program, not a permanent universal benefit. A child born in 2024 or in 2029 gets nothing under §6434, even though they can still have an ordinary Trump account opened and funded through every other mechanism in this article.

The $5,000 Family Contribution Cap — And Why It Isn't Deductible

Under §530A(c)(2)(A), the aggregate of all non-exempt contributions made in a calendar year, while the beneficiary is under 18, can't exceed $5,000. Starting in 2027, that figure is indexed for inflation using the same cost-of-living formula as other Code amounts, rounded down to the nearest $100.

Three categories of contribution are exempt from that cap — meaning they don't use it up:

1. A qualified rollover contribution (Trump account to Trump account, same beneficiary)
2. A "qualified general contribution" — a bulk contribution from an eligible nonprofit or Indian tribal government, distributed evenly across a defined class of beneficiaries
3. The §6434 $1,000 payment itself

Everything else — cash a parent, grandparent, or (as covered next) an employer puts in — counts against the $5,000. And unlike a traditional IRA contribution, none of it is deductible: §530A(c)(1) specifically denies the §219 deduction for any contribution made before the beneficiary turns 18. You're putting after-tax money in.

The $2,500 Employer Exclusion (§128) — What Your S-Corp Can Do

This is the freelancer-specific mechanism, and it lives in a different Code section entirely. §128(a) excludes from an employee's gross income "amounts paid by the employer as a contribution to the Trump account of such employee or of any dependent of such employee," as long as the contributions are made under a program described in §128(c). §128(b)(1) caps the exclusion at $2,500 per year, also indexed for inflation after 2027 (first adjusted for tax year 2028).

§128(c) defines that program as "a separate written plan of an employer for the exclusive benefit of his employees... which meets requirements similar to the requirements of paragraphs (2), (3), (6), (7), and (8) of section 129(d)" — the same subsection that governs dependent-care assistance programs. Reading those paragraphs directly against each other matters here, because §128(c) does not pull in every one of them:

Paragraph (4) — the 25%-of-benefits cap on owner-shareholders that limits how much a dependent-care FSA can favor an owner — is conspicuously absent from §128(c)'s list. That matters for a solo freelancer whose only employee is themselves: the provision that would otherwise gut this benefit for an owner-only company doesn't apply here by the statute's own text. The nondiscrimination and benefits-parity tests that are incorporated are, in practice, straightforward to satisfy when there's only one employee in the plan to begin with — though confirming that with a payroll or benefits professional before relying on it is still the right move, since the IRS hasn't issued guidance on how these borrowed tests apply to a Trump account program specifically.

One easy mistake: the $2,500 employer exclusion is not on §530A(c)(2)(B)'s exempt-contribution list. It counts toward the same $5,000 aggregate cap as any cash you or a family member separately put into the account. If your S-corp contributes the full $2,500, you have $2,500 of room left under the cap for personal contributions that year — not another $5,000.

What the Money Can Actually Be Invested In

§530A(b)(3) restricts investment, before the beneficiary turns 18, to an "eligible investment" — a mutual fund or ETF that:

• Tracks the returns of a "qualified index": the S&P 500, or another index made up of primarily U.S. equities with regulated futures traded on a qualified exchange, excluding any industry- or sector-specific index
• Uses no leverage
• Charges no more than 0.1% of the balance annually in fees and expenses
• Meets any other criteria the Treasury Secretary sets

A leveraged ETF, a sector fund, individual stock picks, or a typical actively managed mutual fund with an expense ratio well above 0.1% simply doesn't qualify for pre-18 holdings in a Trump account, no matter how good its long-term performance looks.

When the Money Comes Out

§530A(d)(1) bars distributions before the first day of the calendar year the beneficiary turns 18. The exceptions are narrow and specific:

• A same-beneficiary rollover to another Trump account (no tax consequence)
• A same-beneficiary rollover to an ABLE account, but only in the calendar year the beneficiary turns 17, and only if it empties the entire account
• Correction of an excess contribution (with a 100% penalty tax on the earnings attributable to the excess)
• A distribution triggered by the beneficiary's death before turning 18

Once the beneficiary turns 18, §530A(a)'s general rule takes over: the account behaves like an ordinary traditional IRA — this is not a Roth-style tax-free account. For family (non-exempt) contributions, that means only the growth is taxed on the way out; the contributions themselves were after-tax money and come out as basis, the same as a nondeductible traditional IRA contribution under §72.

The $1,000 seed and the $2,500 employer exclusion don't get that basis treatment. §530A(d)(2) is explicit: for purposes of applying §72 to a Trump account distribution, "the investment in the contract shall not include" the §6434 seed payment or any contribution excluded from gross income under §128. Those two dollar streams go in with zero basis — so on withdrawal, the entire $1,000 seed and entire $2,500-per-year employer contributions come out as ordinary income, not just whatever they grew into. Family contributions are the only dollars in the account that get basis treatment; the seed and the employer exclusion are a deferral, not an exemption — you (or your S-corp) skip the tax today, and your child pays ordinary income tax on the full amount, principal included, when it's eventually withdrawn. Anyone comparing it to a Roth IRA for a minor, which our guide to traditional vs. Roth IRAs for freelancers covers from the adult-taxpayer side, is comparing two structurally different tax treatments: a Trump account defers tax the way a traditional IRA does; a Roth exempts it.

Worked Example: Funding It Through an S-Corp

A single freelance graphic designer has already elected S-corp status for her business — our guide to setting a reasonable S-corp salary covers how that number gets picked — and pays herself a salary of $80,000 in 2026, with no other income. Her child is born in January 2026, qualifying for both the §530A account and the §6434 payment.

Step 1 — confirm her own marginal rate. With the 2026 single standard deduction of $16,100 (IRS Rev. Proc. 2025-32), her taxable income and bracket check:

$ node -e '
const salary = 80000;
const stdDeduction2026Single = 16100;
const taxableIncome = salary - stdDeduction2026Single;
const bracket22Low = 50400, bracket22High = 105700;
const inBracket = taxableIncome > bracket22Low && taxableIncome <= bracket22High;
console.log(JSON.stringify({ taxableIncome, inBracket }, null, 2));
'
{
  "taxableIncome": 63900,
  "inBracket": true
}

$63,900 of taxable income falls inside the 2026 single filer's 22% bracket ($50,400–$105,700 per Rev. Proc. 2025-32's Table 3), so 22% is her actual marginal federal rate — not an assumed one.

Step 2 — the S-corp adopts a Trump account program and contributes $2,500/year. That amount is excluded from her W-2 wages under §128(a):

$ node -e '
const employerContribution = 2500;
const marginalRate = 0.22;
const annualIncomeTaxSaved = employerContribution * marginalRate;
const years = 18;
const totalIncomeTaxSavedNominal = annualIncomeTaxSaved * years;
console.log(JSON.stringify({ annualIncomeTaxSaved, totalIncomeTaxSavedNominal }, null, 2));
'
{
  "annualIncomeTaxSaved": 550,
  "totalIncomeTaxSavedNominal": 9900
}

$550 a year in federal income tax she doesn't pay today on money that was going into her kid's account anyway — a nominal $9,900 over 18 years at a constant 22% rate and salary, which is a simplification (her salary, the bracket thresholds, and the $2,500 cap itself will all move over 18 years; this isn't a forecast). This is a deferral, not a permanent exemption: under §530A(d)(2), the entire $46,000 of seed-plus-employer contributions carries no basis, so all of it — not just the $48,327 of illustrative growth — is taxed as ordinary income to her child when it's eventually withdrawn. The $9,900 is what the family saves now; what the child owes later depends on their tax bracket at withdrawal, which could be higher or lower than her 22% today.

Step 3 — what the account itself could grow to. She claims the $1,000 §6434 payment once the account can accept money (no earlier than July 4, 2026) and the S-corp contributes $2,500 every year the child is under 18 — 18 total employer contributions, ages 0 through 17. Assuming a hypothetical, illustrative 7% average annual return on the required S&P 500-tracking index fund (not a projection or a guarantee — actual returns will differ):

$ node -e '
const rate = 0.07;
const years = 18;
const seed = 1000;
const annualEmployerContribution = 2500;
const seedFV = seed * Math.pow(1 + rate, years);
const annuityDueFV = annualEmployerContribution * ((Math.pow(1 + rate, years) - 1) / rate) * (1 + rate);
const totalFV = seedFV + annuityDueFV;
const totalContributed = seed + annualEmployerContribution * years;
const totalGrowth = totalFV - totalContributed;
console.log(JSON.stringify({
  seedFV: Math.round(seedFV),
  annuityDueFV: Math.round(annuityDueFV),
  totalFV: Math.round(totalFV),
  totalContributed,
  totalGrowth: Math.round(totalGrowth)
}, null, 2));
'
{
  "seedFV": 3380,
  "annuityDueFV": 90947,
  "totalFV": 94327,
  "totalContributed": 46000,
  "totalGrowth": 48327
}

None of that $2,500/year touched her own taxable income, none of it required a personal check to be written, and none of it competed with her Solo 401(k) or SEP-IRA contribution limits — this is a separate account under a separate Code section entirely. It also isn't free of tax forever: her child will owe ordinary income tax on the full $46,000 of contributed principal (plus whatever it grew into) when it's eventually withdrawn, since §530A(d)(2) gives those contributions no basis.

Common Mistakes to Avoid

• Treating it like a Roth for a kid. It isn't. For family contributions, growth is taxed as ordinary income when withdrawn after age 18, the same as a traditional IRA. For the $1,000 seed and any §128 employer contribution, it's worse than that — §530A(d)(2) strips their basis too, so the entire amount (not just growth) comes out taxable. There's no tax-free-withdrawal feature anywhere in this account.
• Assuming money can go in before July 4, 2026. The governing-instrument requirement in §530A(b)(1)(C)(i)(I) blocks every contribution — including the $1,000 federal payment — before that date, regardless of which tax year it's credited to.
• Stacking the $2,500 employer exclusion on top of a full $5,000 personal contribution. The employer amount isn't exempt from the account's $5,000 aggregate annual cap; combined non-exempt contributions over $5,000 in a year simply aren't permitted.
• Buying whatever fund is convenient. The statute requires an unleveraged, ≤0.1%-expense-ratio fund tracking a broad U.S. equity index. A typical actively managed fund, a sector ETF, or individual stocks don't qualify for the pre-18 holding period.
• Assuming a §529 plan rollover works the same way. The only rollovers the statute authorizes are Trump-account-to-Trump-account (same beneficiary, any time) and a one-time, full-balance transfer to an ABLE account in the year the beneficiary turns 17. Nothing in §530A authorizes moving 529 funds into a Trump account or vice versa.
• Forgetting a one-person S-corp still needs a written plan. §128(c) requires a "separate written plan," not just a bookkeeping entry — draft and adopt it before the S-corp makes its first contribution.

Frequently Asked Questions

What is a Trump Account, and which kids qualify for one?

A Trump account is a new IRC §530A individual retirement account — not a Roth — for a beneficiary under 18 with a Social Security number, created either by the IRS or by another person funding it with a qualified rollover. It's treated like a traditional IRA under §408(a) except where §530A provides otherwise.

Do all kids get the $1,000 federal payment, or just some?

Only children born after December 31, 2024 and before January 1, 2029, who are U.S. citizens with a Social Security number and no prior §6434 election made for them. The payment applies starting with tax years beginning after December 31, 2025 — so 2026 is the earliest eligible year.

How much can my family contribute each year, and can I deduct it?

Up to $5,000/year in aggregate non-exempt contributions (indexed after 2027), and no — §530A(c)(1) denies the §219 deduction for any contribution made before the beneficiary turns 18. It's after-tax money.

Can my freelance S-corp contribute to my kid's Trump Account, and does that save me tax?

Yes, up to $2,500/year (indexed after 2027) under a written §128 program, excluded from your gross income as the employee. That $2,500 isn't exempt from the account's own $5,000 annual cap, so it uses up part of that room — and under §530A(d)(2) it carries no basis, so the full amount is taxed as ordinary income to your child on withdrawal, not just what it grows into.

What can the money be invested in, and when can my kid actually use it?

Only an unleveraged mutual fund or ETF tracking a broad U.S. equity index (like the S&P 500) with fees at or under 0.1% of the balance. No distributions are allowed before the year the beneficiary turns 18, aside from a same-beneficiary Trump-account rollover, a one-time ABLE rollover at 17, an excess-contribution correction, or death; after 18, it's taxed like an ordinary traditional IRA on withdrawal.

When can I actually open one of these and put money in?

Not before July 4, 2026 — 12 months after the OBBBA's July 4, 2025 enactment — for any contribution, including the $1,000 federal payment. The whole regime applies starting with tax years beginning after December 31, 2025.

Authoritative References

• Public Law 119-21 (One Big Beautiful Bill Act), Sec. 70204(a)(1), (b)(1), (d)(1), (e), 139 Stat. 179, 186–188 — enacting IRC §§530A, 128, and 6434, and setting the effective date
• Cornell Law School Legal Information Institute — 26 U.S.C. §530A: Trump accounts — eligibility, contribution limits, eligible investments, and distribution rules
• Cornell Law School Legal Information Institute — 26 U.S.C. §6434: the Trump accounts contribution pilot program (the $1,000 payment)
• Cornell Law School Legal Information Institute — 26 U.S.C. §128: the employer $2,500 exclusion and its written-plan requirement
• Cornell Law School Legal Information Institute — 26 U.S.C. §129: subsection (d)'s nondiscrimination paragraphs, cross-referenced (selectively) by §128(c)
• IRS — Rev. Proc. 2025-32: 2026 inflation-adjusted standard deduction and tax rate tables used in the worked example

Related reading: S-corp election for freelancers · S-corp reasonable salary for freelancers · Accountable plans for freelance S-corps · Hiring your kids: tax strategy for freelancers · Traditional vs. Roth IRA for freelancers

Track the Contribution Before Tax Time Makes You Hunt for It

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This article is educational and not tax or financial advice. Trump accounts are a new provision with no IRS regulations or forms issued as of this writing — election mechanics, the eligible-investment approval process, and how the borrowed §129(d) nondiscrimination tests apply to a one-employee S-corp may all be clarified by future guidance. Consult a qualified tax professional about your specific situation.