The Treasury Department and the IRS proposed a rule on August 20, 2026 that would limit where money in a new type of children’s savings account, called a Trump Account, can be invested while a child is still growing up. Under the proposal, funds would generally have to sit in a low-cost mutual fund or exchange-traded fund tracking a broad U.S. stock index, with annual costs capped at one-tenth of one percent of the account balance. The rule is not final. Treasury and the IRS are taking public comments on the proposal through October 20, 2026, and the restrictions would generally apply starting with tax years beginning on or after January 1, 2026, once a final version is adopted.
What Counts as an Eligible Investment
The proposed regulations define an eligible investment as a mutual fund or exchange-traded fund that tracks an equity index made up primarily of U.S. companies, such as the S&P 500, does not use leverage, and charges no more than 0.1 percent of the invested balance in annual fees and expenses, according to the IRS announcement of the proposed rule. Those restrictions would apply during what the agencies call the growth period, which begins the moment a child’s Trump Account is opened and runs through December 31 of the year the child turns 17.
Once the growth period ends and the account beneficiary turns 18, the eligible-investment restrictions would no longer apply, and the account would begin to function more like a standard IRA that the young adult can manage directly. If a parent, guardian, or other authorized adult never actively selects a fund, money contributed to the account would automatically be invested in a compliant, trustee-selected index option for as long as the growth period lasts, which means a Trump Account cannot sit uninvested in cash or drift into a fund that fails the low-cost, no-leverage, primarily-U.S.-companies test the regulation lays out.
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Why Treasury Is Limiting the Options
IRS Chief Executive Officer Frank J. Bisignano said the proposed regulations are meant to steer families toward low-fee funds rather than higher-cost or leveraged products during the years before a child is old enough to weigh in on the decision. “These proposed regulations will provide clarity for trustees and beneficiaries of Trump Accounts, thus encouraging eligible participants to invest in low-fee mutual funds and ETFs that will grow on a tax-deferred basis potentially over their entire lives,” Bisignano said in the IRS announcement of the proposed rule. “Funds deposited in Trump Accounts enable American children to start investing now and enjoy years of compound earnings for their future college, retirement and other needs.”
The logic behind capping fees at 0.1 percent is straightforward: a fund’s expense ratio compounds against an account’s balance every year, so a cheaper fund keeps more of the account’s growth in the child’s name over a decade or more, before the beneficiary is old enough to actively choose or change an investment. Restricting eligible funds to those tracking a broad U.S. stock index is also meant to keep the underlying holdings simple enough for a trustee to administer at scale across millions of accounts.
How a Trump Account Gets Opened
Parents, guardians, and other authorized individuals can use the IRS Individual Online Account to complete Form 4547, the Trump Account election form, as long as the election is made before the calendar year in which the child turns 18. A child who is a U.S. citizen born between 2025 and 2028 qualifies for an additional $1,000 pilot-program contribution when the account is opened, on top of whatever a family chooses to contribute on its own, according to details on trumpaccounts.gov, the government’s information site for the program.
Trump Accounts were created as a new type of traditional IRA under the Working Families Tax Cuts law, and the investment restrictions exist specifically so that a child’s account grows in a low-cost, broadly diversified fund for years before anyone actively manages it. More background on the underlying provisions is available through the IRS’s Working Families Tax Cuts information page, which the agency maintains as new guidance on the accounts is issued.
What’s Still Undecided
The October 20 comment deadline means the rule could still change before it is finalized. Treasury and the IRS said the current proposal already reflects feedback submitted in response to an earlier request, Notice 2025-68, issued in December 2025, but interested parties, including fund companies and brokerages that plan to offer Trump Accounts, get another formal opportunity to weigh in before the eligible-investment rules become permanent.
Until the regulation is finalized, families opening Trump Accounts today are operating under the framework Treasury has proposed rather than a locked-in rule. The eventual final version could adjust the 0.1 percent fee cap, expand or narrow the list of qualifying index types, or change how a trustee selects a default fund, before the rule takes its intended effect for tax years beginning on or after January 1, 2026.
This article was produced with AI assistance and reviewed by The Financial Wire editorial team.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
