Treasury and the IRS on August 20, 2026, proposed the investment menu for Trump Accounts, the children’s savings accounts created by the 2025 tax law. Under IR-2026-96, money in the accounts could go only into mutual funds or exchange-traded funds that track an index of mainly U.S. stocks, use no leverage and charge no more than 0.1 percent a year. The proposal was published in the Federal Register the next day.

What changed

The statute already required low-cost equity index investing during what it calls the growth period, which runs from the day the account is opened through December 31 of the year the child turns 17. The proposed regulations define the terms.

  • Qualifying indexes. The S&P 500 is the named example. Other indexes qualify if they consist mainly of U.S. companies, with a safe harbor when at least 90 percent of the index weight is U.S. companies, and if their methodology is public. Industry or sector indexes, indexes marketed with an environmental, social or governance focus, bond indexes and funds that combine several indexes are excluded.
  • Fee cap. Total annual fund fees and expenses may not exceed 0.1 percent of net assets, counting recurring, transactional and one-time charges. Separate trustee or custodial fees are not counted toward the cap.
  • No leverage. Funds may not use borrowing or derivatives in ways that materially increase the risk of loss, though short-term borrowing for liquidity and derivatives used to track the index are allowed.
  • Trustee duties. Trustees must limit the menu to eligible funds, set a default investment, check eligibility at least once a year and move out of a fund that stops qualifying within 30 days.

After the growth period ends, most special rules fall away and the account is generally governed by the traditional IRA rules in Section 408.

Who is affected

Any family opening an account is affected, including those whose children receive the $1,000 federal pilot contribution available for children born from 2025 through 2028. Parents and guardians open accounts through the IRS online account or Form 4547. Annual contributions are capped at $5,000, adjusted for inflation. Employers can contribute up to $2,500 a year tax-free to an employee’s child’s account, and that amount counts toward the $5,000 limit. Contributions from governments and charities under the qualified general contribution rules do not.

For affluent families the rules mainly settle a question of control. Parents cannot pick individual stocks, international funds, bond funds or a thematic portfolio inside the account until the year the child turns 18.

The after-tax math

The fee cap is tight. Example: a family contributes $5,000 in a year. At the 0.1 percent ceiling, fund expenses on that amount could not exceed $5 a year. On a balance that grows to $50,000, the ceiling is $50 a year. By comparison, a fund charging 0.5 percent would cost $250 a year on the same $50,000.

Because the account converts to traditional IRA treatment after the growth period, the relevant comparison for high earners is less about fees and more about how money comes out. Families weighing a Trump Account against a 529 plan or a custodial brokerage account typically look at three questions: who controls the investments, what the withdrawal rules are, and how growth is taxed when the child eventually uses the money. The proposed regulations answer the first question for Trump Accounts; the account’s IRA-style tax treatment answers the others.

Moves to discuss with your advisor

  • Families already using a 529 plan for education costs may want a planner to compare it with a Trump Account on flexibility and taxation of withdrawals before adding new money.
  • Parents whose employers offer the $2,500 contribution often consider whether it crowds out their own contributions under the $5,000 annual cap.
  • Where grandparents plan to fund accounts, a CPA can explain how contributions interact with annual gift planning.
  • Investors with strong views on sector or ESG investing will need to hold those strategies outside the account.

What to watch

Written comments and requests for a public hearing are due October 20, 2026. The rules are proposed to apply to tax years beginning on or after January 1, 2026. Fund sponsors are likely to seek clarity on how the 0.1 percent cap treats securities lending income and trading costs, and on whether other broad U.S. indexes meet the 90 percent test. Earlier guidance released on August 11 covered employer contributions, and further proposals on trustee reporting could follow. Current Federal Tax Developments summarized the design as aimed at low-cost, non-leveraged equity growth.

Sources

  1. First reported IR-2026-96: Treasury, IRS issue proposed regulations on eligible investments for Trump Accounts under the Working Families Tax Cuts — IRS
  2. Guidance on Eligible Investments for Trump Accounts — Federal Register
  3. Implementing Trump Account Eligible Investments: Analysis of Proposed Regulations — Current Federal Tax Developments

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.