Every U.S. newborn will receive $1,000 in a savings account in 2026 - What you need to know

There’s no denying that raising children can be expensive, especially in 2025 when inflation rates and the cost of living are sky-high. In fact, the latest figures from the Brookings Institution, a nonpartisan American research institute, reveal it costs about $310,000 to raise a child from birth through age 17.

Building on the rising costs of raising children, President Trump recently announced a new initiative aimed at providing financial support to families. The baby bonus program, set to begin in 2026, will deposit $1,000 into a savings account for every U.S. newborn born between 2025 and 2028. This one-time deposit is funded by the federal government as part of the Big Beautiful Bill Act, designed to help parents manage the expenses of raising a child.

Whether you’re a new parent or plan on becoming one in the near future, it’s a good idea to familiarize yourself with these “Trump accounts” as well as other programs that may be available to you and your family.

What are "baby bonus" programs?

Over the years, several initiatives have been implemented to support families financially in the U.S. While they fall short compared to the family and caregiving benefits in countries like Canada and Australia, they are a step in the right direction. In some countries, tax breaks and direct payment programs are used to encourage citizens to have more children, with varying degrees of success.

The Child Tax Credit, for example, is a federal program that allows qualifying families to claim a tax credit for each child under the age of 17. There’s also the Earned Income Tax Credit, which is another tax credit for some low-to-moderate-income parents with children.

In addition, there are welfare-based programs that benefit families with low incomes. These include Medicaid, food assistance through Supplemental Nutrition Assistance Program (SNAP), and Women, Infants, and Children (WIC), which offers free nutritional foods and formulas, breastfeeding support, and related services.

The Trump baby bonus program is distinctive in that it represents a shift from traditional welfare approaches to asset-building strategies, aiming to provide parents with a means to give their children a financial head start. While some lawmakers have raised concerns about the program's cost and scope, there is ongoing debate about the long-term effects of these payments and incentives on federal spending.

Key components of the federal baby bonus 

The $1,000 baby bonus is available to infants born between Jan. 1, 2025, and Dec. 31, 2028. Once federal regulations are finalized, parents and others will be able to contribute up to $5,000 annually per child. Account holders can use the funds for qualified withdrawals, such as making a down payment on a first home.

Employers may also contribute up to $2,500 of the annual contribution limit toward their employees’ children’s accounts. The funds in these accounts will grow tax-deferred until the child reaches adulthood. While earnings accumulate tax-free, they become taxable upon withdrawal. This structure allows the account’s value to compound over time, similar to other long-term savings vehicles.

Once a child turns 18, the account will turn into an individual retirement account (IRA), where the funds will continue to grow until retirement.

Baby bonus eligibility requirements

To qualify for the Trump baby bonus program, a child must be a U.S. citizen and born between Jan. 1st, 2025 and Jan. 1st, 2029 with a valid Social Security number (SSN). The program applies to each child born in the U.S. during this specified period. Unlike welfare-based programs, such as SNAP and WIC, there are no income restrictions. Every child who meets the timing and SSN requirements will receive a Trump account, regardless of their household income.

The initial rollout of the Trump baby bonus program will be a pilot program before full implementation.

How to apply for a baby bonus  

In 2026, the U.S. Department of the Treasury will automatically open and fund Trump accounts for all qualifying children who were born in 2025. These accounts will be opened automatically once a child obtains a Social Security number. Their parents won’t have to take any action. When a child is born after 2025, the account will also be created automatically after a parent adds the child to their tax return. The initial payment will be deposited into the account without any action required from the parents. At the time of this writing, application and approval details for the baby bonus program are still being ironed out.

Federal baby bonus benefits structure 

After a child receives their Trump account, there are certain rules they must follow with their parents. Distributions won’t be allowed until they turn 18, and at that point, the account will transition to an IRA.

They may make withdrawals for some purposes, such as education expenses, small business expenses, and first-time home purchases, up to $10,000. Withdrawals might also be an option to fund expenses for natural disasters or the birth or adoption of a child, up to $5,000. Any other withdrawals will come with a 10% penalty until the child reaches age 59 ½.

When employees make distributions for qualified purposes, they may be taxed as long-term capital gains, which is typically a much lower tax rate. If the distributions aren’t qualified, on the other hand, they can expect to be taxed at the regular federal tax bracket.

While the program is designed to help children in lower-income families build wealth, it may face challenges in reaching all those who could benefit most from this support.

Baby bonus investment structure 

It’s important to understand that the Trump accounts come with limited investment options. They require that all funds are invested in low-cost mutual funds or exchange-traded funds (ETFs), like the S&P 500. These funds typically track market indexes, allowing account holders to benefit from the overall growth of the market.

Also, annual fees cannot be more than 0.1% of the account balance. This way all accounts will support the growth of the broad market and keep fees to a minimum in order to hopefully allow for substantial returns.

The year a child reaches 18, their Trump account will transition to an IRA and adhere to all relevant rules, including IRA rollover, transfer, and distribution rules. In order to contribute, the child will need eligible compensation.

Understanding these investment options is an important aspect of personal finance for families.

Projected growth analysis

When you do the math, it’s clear that the baby bonus has the potential to build significant wealth for children who qualify, especially when contributions are maximized. For instance, while the initial $1,000 government contribution may grow to around $4,000 to $5,000 by the time a child turns 18, moderate annual contributions of $1,000 can increase the total to $40,000 to $45,000.

Moreover, families contributing the maximum $5,000 yearly could see their accounts grow to approximately $190,000. This growth is driven by the power of compound interest over the 18 years and beyond. However, families unable to make these contributions may not fully benefit from the program’s potential.

State-level baby bonus programs 

Some states have baby bonus programs that may work in tandem with the Trump accounts. In California, for example, CalKIDs supports children with college savings by automatically creating a 529 account for newborns born on or after July 1st, 2022. 

There’s also the Child and Dependent Care Credit in New York, which helps qualifying families offset childcare expenses. Since programs vary widely by state and region, it’s important to explore all available options to support your child’s needs effectively.

Strategic planning for maximum benefit

So, what can you do to ensure your child benefits from Trump’s baby bonus program as much as possible? It all starts with financial literacy education. Make it a priority to teach your child about smart money management and explain important yet age-appropriate concepts, such as saving, budgeting, and investing as they grow up. 

Also, do your best to help them balance long-term growth with strategic withdrawals and utilize sound tax planning strategies for fund utilization. It may make sense to consult a trustworthy financial planner or advisor to help ensure your child is set up for success. 

Comparison with traditional savings vehicles

Fortunately, there are a variety of other savings tools to support you and your child through various parts of life. In most cases, a one-time baby bonus is not enough to fully address the long-term costs of raising a child. Let’s take a closer look at how they compare to the Trump account.

Baby bonus vs. 529 education plans

529 plans are specifically designed to help cover qualifying educational expenses, such as college tuition, private school fees, and textbooks. In contrast, Trump accounts offer greater flexibility, allowing funds to be used not only for education but also for entrepreneurship or homeownership. This means if your child chooses a different path, they may still benefit from a Trump account, whereas a 529 plan’s benefits are limited to educational purposes.

Baby bonus vs. custodial accounts (UTMA/UGMA)

Custodial accounts, such as the UTMA and UGMA, can be opened by parents, guardians, or other adults. Compared to Trump accounts with caps of up to $5,000 for certain contributions, there are no legal contribution limits. Also, while the baby bonus grows tax-deferred and is taxed as ordinary income following withdrawals, custodial accounts are taxed at the child’s tax rate after they turn 19 or 24 if they’re enrolled in school full-time.

Baby bonus vs. traditional savings accounts

Traditional savings accounts for children can be high-yield savings accounts, money market accounts, or certificates of deposit (CDs). They offer more flexibility than the baby bonus accounts because they can be opened at any time for any child, regardless of birth date. Also, you may add, transfer, or withdraw funds as little or as much as you want (unless it’s a CD with an early withdrawal penalty, for example). 

Baby bonus vs. child tax credits

The baby bonus is a $1,000 savings account that qualifying U.S. babies may receive at birth, regardless of household income. It’s different from the federal child tax credits, which aim to alleviate the tax burden for eligible low-to-moderate income families with children. The baby bonus serves as a long-term wealth-building tool, whereas the child tax credits are solely geared toward tax savings.

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Preparing for potential changes

Trump savings accounts are new and shiny. That being said, details are not set in stone and changes are to be expected. If you believe the baby bonus will impact your family, it’s a good idea to stay informed about legislative updates. You may also want to find advocacy opportunities to preserve this program as there’s no guarantee it will remain forever. WhiteHouse.gov and the Tax Foundation are two resources that can help keep you in the loop.