States move to open Trump Accounts for foster children

Twenty-five states have agreed to open Trump Accounts for children in foster care, according to a tally from the U.S. Department of Health and Human Services. The initiative, announced in June by First Lady Melania Trump with the U.S. Treasury Department, could create new savings and investment balances for a population that often enters adulthood with limited assets.

The accounts launched on July 4 as tax-advantaged investment vehicles for children. Parents, guardians, grandparents and others can contribute as much as $5,000 a year in after-tax money until the year before a beneficiary turns 18. For children born from 2025 through 2028, the Treasury Department will provide a $1,000 opening deposit if an account is established.

For foster children, state governments would open the accounts in their capacity as legal guardians. Advocates say the structure could attract charitable contributions and, in some cases, hold federal benefits owed to children. They also warn that withdrawal limits, tax rules and interaction with means-tested services could reduce the accounts’ practical value for some young adults leaving care.

How the accounts would work

Employers may contribute up to $2,500 a year per worker, counted within the $5,000 annual limit. The Treasury Department says qualifying charities and state or local governments can add money without using up that cap.

HHS data show an estimated 331,747 children were in foster care in 2025. About 15,000 aged out of the system that year, according to HHS data. Most states treat age 18 as legal adulthood, although extended foster care is often available through age 21 for eligible young adults who choose to remain enrolled.

Daniel Hatcher, a University of Baltimore School of Law professor who studies child welfare finance, said the accounts may offer benefits but need more flexibility for foster youth at the point when they are leaving care. Arnie Eby, executive director of the National Foster Parent Association, said the focus on foster children draws attention to their long-term needs, while adding that the eventual impact is still uncertain.

Withdrawal rules could limit use

Trump Account assets generally cannot be accessed before age 18. After that, the accounts are subject to rules similar to traditional individual retirement accounts. Withdrawals may face ordinary income tax unless the money was previously taxed, and a 10% early-withdrawal penalty may apply before age 59½ unless an exception is available.

Exceptions include qualified higher-education costs, as much as $10,000 for a first home purchase, $5,000 for birth or adoption of a child, $1,000 a year for personal emergencies, certain deductible medical expenses and health-insurance premiums during unemployment. Advocates said young adults leaving foster care may need money for costs that fall outside those categories.

Private pledges could add to balances. Michael Dell, founder of Dell Technologies, and Susan Dell have pledged $6.25 billion tied to Trump Accounts, including $250 for eligible children born from 2016 through 2024 who live in ZIP codes with median income of $150,000 or less. Ray and Barbara Dalio have committed $250 for qualifying children in Connecticut under similar ZIP-code income criteria. Altimeter Capital Chief Executive Brad Gerstner has pledged $250 for qualifying children under 5 in Indiana, and Micron Technology has pledged $250 per account for children in communities where it operates.

Federal benefits remain a policy question

About 27,000 foster children receive Social Security or Supplemental Security Income benefits, according to the Social Security Administration. Treasury Secretary Scott Bessent said when the initiative was announced that states would be able to direct survivor benefits or SSI into Trump Accounts.

Many state child welfare agencies have used those benefits to reimburse foster-care costs, according to experts. HHS said 28 states have now agreed not to intercept survivor benefits, up from 11 states with such policies last year. The agency also said only a few states take SSI.

The Treasury Department says survivor benefits deposited into a Trump Account would count toward the $5,000 annual contribution cap. The average monthly survivor benefit for a person under 18 is about $1,181, while the average SSI benefit for children under 18 is about $874, according to the Social Security Administration. Any survivor benefits above the annual cap would need to be kept elsewhere for the child, and Treasury has not released guidance on how SSI would be treated.

The Social Security Administration says a Trump Account would not count for SSI eligibility before age 18. Advocates said it remains unclear how those assets would affect eligibility for means-tested services after a foster youth reaches adulthood.

This story draws on original reporting from CNBC.