WASHINGTON–Credit unions, which often talk about the need for younger members, will now have the opportunity to compete in a new arena for the youngest members of all, as the recently passed reconciliation bill includes language creating–and funding for–a new savings account for children, with a one-time deposit of $1,000 from the federal government for those born in 2025 through 2028.

As the CU Daily reported here, the new accounts are expected to create a new battleground of competition for credit unions as every provider from banks to fintechs to others seeks to capture the accounts. 

The final version of the bill makes the tax-free savings accounts for minors, called Trump accounts, a form of individual retirement account (IRA) under Sec. 408(a), according to the Journal of Accountancy. Under the legislation, the accounts will be IRAs (but not Roth IRAs) for the exclusive benefit of individuals under 18. 

About the Contributions

“Contributions can only be made in calendar years before the beneficiary turns 18 and distributions can only be made starting in the calendar year the beneficiary turns 18,” the Journal of Accountancy stated “Trump accounts will have to be designated as such when they are set up, and the bill does not allow Trump account contributions until 12 months after the date of enactment of the bill.”

Under the bill, Treasury can set up Trump accounts for individuals that it identifies as eligible and for whom no Trump account has already been created.

Eligible Accounts

The Journal of Accountancy said eligible investments in Trump accounts would generally be mutual funds and indexed ETFs. Contributions (other than qualified rollover contributions) will be capped at $5,000 a year (adjusted for inflation after 2027). State, local, and tribal governments and charitable organizations could make “general funding contributions,” which would be contributions made to a specified qualified class of Trump account beneficiaries, the analysis explained.

“Qualified classes include beneficiaries under the age of 18, and the general funding contribution can specify geographical areas or specific birth years of beneficiaries whose accounts will receive the contributions,” the Journal of Accountancy stated, adding that the bill creates a new Sec. 128 that allows for employer contributions to Trump accounts. These contributions will not be included in the employee’s income.

Additional Tax Credit

In addition, a new Sec. 6434 creates a Trump accounts contribution pilot program that provides a $1,000 tax credit for opening a Trump account for a child born between Jan. 1, 2025, and Dec. 31, 2028. 

The bill appropriates $410 million, to remain available through Sept. 30, 2034, to fund Trump accounts.