2025 Tax Proposal | Baby Savings Accounts
Baby savings accounts—currently being referred to as “Trump Savings Accounts”—would be tax-advantaged investment accounts automatically established for every child born between 2025-2028.
In May 2025, Congress introduced two proposals that could change the way consumers save money, providing tax incentives to encourage people to save more. One of the proposals, being referred to as the Trump Savings Account, is specifically for babies and young children, aimed at incenting families to start saving for their children at a young age and take advantage of the power of compounding.
Background | Baby Savings Accounts
Baby Savings Sccounts—currently being referred to as “Trump Savings Accounts”—would be tax-advantaged investment accounts automatically established for every child born between January 1, 2025, and December 31, 2028. Each account would be pre-funded with a $1,000 government contribution.
The funds could later be used for a limited range of important life investments such as: covering education or credentialing costs, making a down payment on a first home, or launching a small business.
Proposed Rules | The May 2025 Tax Proposal
Key provisions of the proposed legislation include:
Funding the Accounts:
Under the proposal, parents would be able open a Trump Savings Account for any child under age 8 at a financial institution of their choice. However, only children born during the eligible window (2025–2028) would receive the automatic $1,000 deposit. If parents do not initiate an account for an eligible newborn, the government would open one on their behalf and notify them.
Future Contributions:
After the initial setup, families could contribute up to $5,000 per year into the account, with limited exceptions for additional gifts from local charities. Investment growth within the account would be tax-free, provided the funds remain in the account and are invested in a broad-based stock index.
Eligibility is broad: any U.S. citizen child would qualify, as long as both parents have valid Social Security numbers. These accounts could be used in conjunction with other tax-advantaged savings vehicles like 529 plans.
Withdrawal Rules:
Account holders would face restrictions on how the funds may be used. Permitted uses include post-secondary education or training, a down payment on a first home, or starting a small business. At age 18, individuals could access up to 50% of the account balance; full access would be granted at age 30. Using the funds for unapproved purposes would result in the investment earnings being taxed as ordinary income and could trigger an additional 10% penalty.
Tax Treatment of Withdrawals:
When withdrawals are made for approved purposes, investment gains would be taxed at the more favorable long-term capital gains rate. Non-qualified withdrawals would be taxed as ordinary income, with potential penalties on the earnings portion.
Comparison to 529 Plans
Like a 529 plan, the Trump Savings Account would provide incentives to start saving early by allowing earnings to grow tax-deferred and taxing qualified withdrawals at a reduced rate. However, these proposed accounts offer more flexible use cases than 529s, though 529 plans currently permit higher annual contribution limits.
Summary
If implemented, Trump Savings Accounts would offer children a head start in building long-term financial stability through the power of compound growth, while encouraging investment in education, housing, and entrepreneurship.
As the legislation proceeds through the Senate, please check back for updates as amendments and adjustments are likely.
A More Complete Solution
LEVATUS Wealth Counsel | Investment Management is a leader at the forefront of Integrated Wealth Service - a modern system of addressing financial security, quality of life, and the full impact of wealth across generations, within a unified plan. We are always happy to connect and answer questions, big and small.
INTEGRATED WEALTH SERVICE
Unlocking the Good Across Generations
ABOUT THE AUTHOR
Liz Darling is a Senior Client Advisor and founding member of LEVATUS Wealth Services. Her professional background includes institutional real estate investment management, wealth planning and hospitality management. Coming from an institutional background, Liz’s favorite part of her day is interacting with her clients on the little things that she can do to make their lives and their financial situation simpler and clearer. Liz taps into her years of experience to write on topic such as, the role of real estate in generational wealth building, the power of straightforward strategy and planning, and how best to address the many ways wealth can impact children.
