A new federal program passed under the One Big Beautiful Bill Act aims to help children build savings from birth by offering a $1,000 seed payment from the government.
Children born between Jan. 1, 2025, and Dec. 31, 2028, are eligible for the initial $1,000 payment. Parents can also set up accounts for children younger than 18 who were born before Jan. 1, 2025, but those accounts will not receive the federal seed money.
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Family members can contribute up to $5,000 annually to the accounts. Private donations, including contributions from a parent's employer or a nonprofit, are also accepted. Parents can sign up using IRS Form 4547, but contributions cannot begin until July 4 of this year.
The funds become available when the child turns 18. The accounts carry specific tax rules similar to a traditional IRA where taxes are deferred. Parents contribute after-tax money and will have to pay taxes on the account's growth upon withdrawal.
Financial experts recommend parents accept the federal seed money but caution against investing their own funds into these specific accounts. Instead, experts suggest parents consider separate brokerage accounts or 529 savings plans, which offer tax advantages for education expenses.
