What Ecommerce Business Owners Need to Know About the New Tax-Advantaged Savings Accounts for Kids
If you have kids under 18, there’s a new savings vehicle you should have on your radar. Trump Accounts — created under the One Big Beautiful Bill Act — are tax-deferred investment accounts designed specifically for children. They go live on July 5, 2026, and they come with some genuinely useful planning opportunities, especially if you’re running a profitable ecommerce business.
Here’s how they work.
The Basics
A Trump Account is essentially a custodial traditional IRA for minors. One account per child. The child owns it, but an adult administers it until the child turns 18.
Eligibility: Any U.S. child under 18 with a Social Security number.
The government seed: Every child born between January 1, 2025 and December 31, 2028 receives a $1,000 contribution from the Treasury Department, automatically invested in an index fund. This doesn’t count against the annual contribution limit.
Contribution Limits
- $5,000/year total from all sources (2026–2027, indexed after that)
- No earned income requirement — unlike a Roth IRA for your kid, the child doesn’t need a job
- No income phaseout — your AGI doesn’t matter
- Employer contributions: Up to $2,500/year per employee (counts toward the $5,000 cap), excluded from the employee’s income
That last point is worth noting if you run payroll through your ecommerce business. You can set up an employer-sponsored Trump Account plan and make deductible contributions toward your employees’ (or your own) children’s accounts. The contribution is a business deduction for you and not taxable income to the employee. Learn how we help ecommerce owners with strategic tax planning on our Services page.
Investment Options
These are intentionally simple: mutual funds or ETFs tracking the S&P 500 or another equity index, with at least 90% in U.S. companies. Expense ratios are capped at 0.10% (10 basis points). No individual stock picking, no crypto, no alternatives.
Tax Treatment
This is where it gets a bit nuanced depending on the source of the contribution:
- Your personal contributions (after-tax): You don’t get a deduction when you contribute. When the child eventually withdraws, only the earnings are taxed as ordinary income. The original contributions come out tax-free.
- Government seed money and employer contributions (pre-tax): The full amount — contributions and earnings — is taxed as ordinary income upon withdrawal.
- Employer deduction: If you contribute through your business, the contribution is deductible as a business expense. It’s excluded from the employee’s W-2 income (up to $2,500).
Tax Summary Table
| Contribution Source | Tax on Contributions | Tax on Earnings |
|---|---|---|
| Personal (after-tax) | Not taxed on withdrawal | Ordinary income |
| Government seed | Ordinary income | Ordinary income |
| Employer (pre-tax) | Ordinary income | Ordinary income |
Withdrawal Rules
This is the part most people get wrong, so pay attention.
Before age 18: Money is locked up. No hardship exceptions. The only ways money comes out are: rollovers to another Trump Account, return of excess contributions, or death of the beneficiary. That’s it.
Age 18 to 59½: The account converts to a standard traditional IRA. Withdrawals are subject to ordinary income tax plus a 10% early withdrawal penalty. Standard IRA penalty exceptions apply — higher education expenses, first-time home purchase ($10K lifetime), certain medical expenses, childbirth/adoption.
After age 59½: No penalty. Just ordinary income tax on the taxable portion.
RMDs at 73: Required minimum distributions kick in at age 73, just like any traditional IRA. Miss one and the penalty is 25% of the amount you should have withdrawn.
Planning Strategies Worth Considering
1. Max It Out Early
$5,000/year invested in a low-cost S&P 500 index fund from birth could grow to a very significant sum by retirement. Even the government’s $1,000 seed alone, assuming historical market returns, could be worth over $500K by the time the child reaches retirement age.
2. Employer Contribution Through Your Business
If you’re an S-corp or C-corp owner, consider establishing a Trump Account plan. You can make deductible employer contributions of up to $2,500/year per employee toward their children’s accounts. This is a legitimate business deduction that also serves as an employee benefit.
3. Roth Conversion at 18
When the child turns 18 and likely has little to no income, they can convert the Trump Account to a Roth IRA. They’ll pay income tax on the conversion at their (presumably low) tax rate, then the money grows tax-free forever with no RMDs. This is potentially the most powerful move in the playbook.
4. Keep It Separate
If your child keeps the Trump Account separate from other IRAs after turning 18 (i.e., doesn’t roll it into a combined traditional IRA), the accounts aren’t aggregated for tax purposes on withdrawals. This gives more flexibility when deciding which account to tap.
5. Watch the Kiddie Tax
Even penalty-free withdrawals before the child is off your return can trigger kiddie tax rules. If your child takes distributions while still a dependent with unearned income, the tax hit could be at your marginal rate, not theirs. Plan accordingly.
How to Open One
Starting with 2025 tax returns, you can elect to open a Trump Account by filing Form 4547 or using the online tool at trumpaccounts.gov. Accounts go live July 5, 2026.
Over 500,000 Americans elected to open Trump Accounts in just the first three days of the 2026 filing season, so there’s significant demand. Don’t sleep on this.
Have questions about how Trump Accounts fit into your overall tax strategy? Contact Us and we’re happy to help you think through the numbers.:contentReference[oaicite:1]{index=1}
If you’re interested in more insights like this, check out our latest posts on the EcomCPA Blog.
The Bottom Line
Trump Accounts are a straightforward, low-cost way to build long-term wealth for your kids with meaningful tax advantages. For ecommerce business owners specifically, the employer contribution angle adds another layer of tax planning opportunity.
The IRS is still finalizing detailed guidance — they’re accepting public comments through February 2026 — so some of the finer points may shift. We’ll keep you updated as rules are finalized.
This post is for informational purposes only and does not constitute tax advice. Consult with your tax professional before making any financial decisions.
Want help optimizing your ecommerce finances? Contact Us to get started.
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