IRS Proposes Rules to Restrict Trump Account Investments

The IRS released proposed regulations on 20 August 2026 that would limit what Trump accounts can invest in during the years a child is growing up. The draft rules cap eligible investments to low-fee stock index funds and ETFs, and they set a hard ceiling on annual fund expenses. For US families planning ahead, this is one of the more consequential pieces of tax-advantaged savings guidance to land this year, and the comment window closes on 20 October 2026.

What Is a Trump Account?

Trump accounts are a new category of individual retirement account created under Section 530A of the Internal Revenue Code. The provision was introduced by H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act (OBBBA). They're designed for eligible children, meaning those who have been issued a Social Security number and who have not turned 18 before the close of the calendar year in which the election to open an account is made.

The federal seed contribution

A pilot programme under Section 6434 makes a one-time $1,000 federal government contribution available for eligible children born after 31 December 2024 and before 1 January 2029. That seed money, plus any additional contributions from parents or other responsible parties, would sit inside the account and grow on a tax-advantaged basis.

Who qualifies

Eligibility is tied to having a valid Social Security number and not yet reaching age 18 in the year the account election is made. Beyond that, the statutory framework is new enough that practitioners are still waiting for further guidance on edge cases around residency and income.

The Investment Restrictions Explained

The proposed regulations introduce what the IRS and Treasury call the "growth period," which begins when a beneficiary's initial account is established and ends on 31 December of the calendar year in which the beneficiary turns 17. During that window, the investment menu is tightly constrained.

What's allowed during the growth period

To qualify as an eligible investment under the draft rules, a mutual fund or ETF must meet all three of the following tests:

• It tracks an equity index composed primarily of US companies, such as the S&P 500.
• It does not use leverage.
• Its annual fees and expenses do not exceed 0.1% of the fund's balance.

That 0.1% expense ratio ceiling is strict. The average actively managed US equity fund charges many times that amount, so the rule effectively filters out most of the fund universe and points families squarely toward broad-market passive products. Trustee fees, however, are carved out: the 0.1% cap does not apply to fees charged by the account trustee itself.

What happens after the growth period

Once the calendar year in which the beneficiary turns 17 ends, the investment restrictions drop away entirely. At that point, account holders would be free to shift into a broader range of assets, though further Treasury guidance may shape what that actually looks like in practice.

Default investments and trustee selection

If a beneficiary or responsible party doesn't actively choose an eligible investment from the options a trustee offers, the proposed regulations say the funds will be automatically invested in an eligible investment selected by the trustee. Treasury has already flagged the State Street SPDR Portfolio S&P 500 ETF (SPYM) as the initial default, and four additional low-cost index ETFs have been identified as options that parents or guardians can select.

Why Treasury Is Restricting the Investment Menu

The rationale set out in the Treasury news release is straightforward: keeping investment costs low and maintaining broad diversification gives account balances the best chance to compound meaningfully over a long horizon. A child born in 2025 who opens a Trump account would be in the growth period for roughly 17 years. Over that kind of timeframe, even a fraction of a percentage point in annual fees compounds into a meaningful drag on the final balance. The proposed rules try to prevent that outcome by removing high-cost products from the eligible list entirely.

This philosophy mirrors the approach behind target-date fund defaults in employer-sponsored retirement plans, where regulatory pressure has long pushed plan sponsors toward low-cost, diversified options as the default path for participants who don't make active choices.

No Crypto During the Growth Period

The proposed rules don't single out digital assets by name, but the effect is clear: cryptocurrency and crypto-linked investment products would not qualify as eligible investments during the growth period. An ETF tracking a crypto index, for instance, would almost certainly fail the "primarily US equity companies" test. A spot Bitcoin ETF would fail it outright. And many crypto-focused funds carry expense ratios well above the 0.1% ceiling regardless.

This matters for the crypto-holding community because there has been some speculation about whether these new accounts might eventually allow alternative asset classes. The proposed regulations answer that question firmly for the growth period, at least for now. Whether Treasury revisits this position in final rules, or whether the post-17 flexibility opens doors for digital assets later, remains to be seen.

If you're already holding crypto outside tax-advantaged accounts and wondering how that fits into your broader US tax picture, it's worth revisiting how US crypto tax reporting works under the latest IRS rules and what the CLARITY Act could change about how crypto is taxed in the US.

Practical Implications for Families

For parents and guardians who are considering opening a Trump account or who have already set one up, the proposed regulations carry several immediate practical points.

Verify fund eligibility before selecting

Not every low-cost index fund will automatically qualify. The "primarily US companies" requirement and the no-leverage rule both need to be satisfied alongside the 0.1% expense cap. Treasury has pre-identified a handful of eligible options, so starting with those named funds is the safest approach while the rules are still in proposed form.

Trustee defaults are not optional to ignore

If a trustee's fund menu doesn't include any eligible options, or if the account holder doesn't select one, the account will be automatically swept into the trustee's chosen default. That default must itself be eligible. Parents who want a specific fund should make that election actively rather than relying on the default to match their preference.

Comment by 20 October 2026

The IRS has invited public comments and the deadline is 20 October 2026. If you or your tax adviser believe the proposed rules are too restrictive, or that certain categories of fund should be included or excluded, this is the window to make that case on record.

The rules apply from 1 January 2026

The proposed regulations are written to apply to tax years beginning on or after 1 January 2026. That means accounts opened this year are already operating within the proposed framework, even though the rules haven't been finalised. Families and their advisers should treat the proposed rules as the working standard until further notice.

The Broader Tax-Advantaged Savings Landscape

Trump accounts sit alongside existing structures like 529 education savings plans and Coverdell accounts in the family savings toolkit, but with a distinct IRS code section and their own eligibility rules. The investment restrictions during the growth period make them significantly more constrained than, say, a self-directed IRA that an adult might hold. That trade-off reflects the policy goal: predictable, long-term, low-cost accumulation for children rather than speculative flexibility.

For those who are also managing crypto tax obligations alongside conventional savings, the two planning streams don't interact directly, but your overall tax position does. Every taxable crypto disposal generates a gain or loss that feeds into your annual federal return. Knowing how to calculate crypto taxes accurately, whether from trading, staking rewards, or other digital asset activity, remains essential regardless of what new savings vehicles emerge from Congress.

Frequently Asked Questions

Can I put crypto directly into a Trump account?

Under the proposed regulations, no. During the growth period, only eligible mutual funds and ETFs that track a primarily US equity index, don't use leverage, and charge no more than 0.1% per year in fees qualify. Direct crypto holdings and most crypto-linked funds would not meet those criteria.

What happens to the account after my child turns 17?

The growth period ends on 31 December of the calendar year in which the beneficiary turns 17. After that, the investment restrictions in the proposed rules no longer apply. What investment options actually become available after that point will depend on further Treasury guidance and what individual trustees offer.

Does the $1,000 federal contribution count as taxable income?

The proposed regulations and the Treasury news release don't address the income tax treatment of the Section 6434 federal contribution directly. You should consult a qualified tax adviser or wait for further IRS guidance before making assumptions about how that contribution is reported.

When do these rules take effect?

The proposed regulations are written to apply to tax years beginning on or after 1 January 2026. They are not yet final: the IRS comment period runs through 20 October 2026, and final regulations could differ from what was proposed.

How does this connect to my crypto tax obligations?

It doesn't affect existing crypto tax rules directly. Crypto gains and income from digital asset activity are still taxable under the standard US framework regardless of whether you hold a Trump account. If you're unsure how to file crypto taxes for the current year, working through your transaction history with an accurate crypto tax calculator remains the right starting point.

Source: Journal of Accountancy