With the Tax Cuts and Jobs Act (TCJA) set to expire at the end of 2025, tax policy is once again front and center. On May 22, 2025, the House passed a sweeping tax proposal, officially titled “One Big Beautiful Bill Act,” by a 215–214 vote. The bill aims to extend key provisions of the TCJA while introducing several new measures intended to encourage saving and simplify the tax code. Although a reduction in the top capital gains tax rate has been mentioned, no such change is included in the proposed legislation as it stands. Instead, the most relevant update for investors is the introduction of a new tax-advantaged savings account known as the Trump account.
A financial advisor can help position your portfolio strategically for future tax changes.
- The House-passed Trump tax plan keeps current capital gains rates but introduces a new savings account for children with capital gains-style withdrawal treatment.
- The Trump account allows after-tax contributions up to $5,000 per year and locks funds until age 18, with full access at 25.
- Non-qualified withdrawals may face income tax and a 10% penalty, making careful planning important.
How the Trump Tax Plan Affects Capital Gains Tax Rates
Under current law, long-term capital gains—profits on assets held for more than one year—are taxed at preferential rates of 0%, 15% or 20%, depending on a taxpayer’s income. These thresholds are adjusted annually for inflation. For filing in 2025, for example, the 0% rate applies to single filers with taxable income up to $48,350. Meanwhile, the 20% rate begins at $533,401.
The proposed tax plan does not change these rates. However, without congressional action, the capital gains framework could shift after 2025, when many TCJA provisions are set to expire. At this point, it’s possible capital gains rates could revert to aligning with ordinary income tax brackets.
In recent months, Project 2025, a policy blueprint created by the conservative Heritage Foundation, has called for:
- Lowering the top long-term capital gains rate to 15% (from the current 20%)
- Indexing capital gains to inflation, allowing investors to adjust their cost basis upward to reflect inflation over time
While these ideas are not part of the current bill, they do offer insight into the types of changes the administration might pursue. Such measures would be beneficial to higher-income investors. At the same time, they could introduce complexity around calculating tax basis and choosing the appropriate inflation index.
The Trump Account and Capital Gain Taxes
The only capital gains-related change introduced by the Trump tax plan is in the taxation of Trump account withdrawals. The Trump account, which previously called MAGA account (short for “Make America Great Again” account), is a new savings account for children. It’s designed to encourage personal saving by offering tax-advantaged growth, similar in some ways to existing retirement or education savings accounts.
Under the bill, individuals would be able to contribute up to $5,000 per year to a Trump account. Contributions are made with after-tax dollars, and the account is allowed to grow tax-deferred over time.
The unique feature of the Trump account lies in the tax treatment of withdrawals. When funds are withdrawn, they are not taxed as ordinary income, as is the case with some retirement accounts. Instead, qualified withdrawals will be treated as capital gains and taxed at the applicable long-term capital gains rate.
The tax plan specifies that Trump account distributions will be included in the investor’s net capital gains for the year. This means when you take money out of a Trump account, it is subject to the same capital gains tax rules that apply to profits from the sale of investments like stocks or mutual funds. Currently, rates of 0%, 15% or 20%, depending on income, apply to long-term capital gains.
By aligning Trump account withdrawals with capital gains tax treatment, the plan could offer a more favorable outcome than taxing withdrawals as ordinary income. Long-term savers and those in lower capital gains tax brackets in particular may benefit.
Trump Account Contribution and Withdrawal Rules
While the Trump account is a new concept, the proposed legislation outlines clear rules regarding who can contribute, how much can be added each year and how withdrawals will be handled. Understanding these guidelines is essential for determining whether a Trump account could fit into your financial strategy.
Annual Contribution Limits
Under the proposal, individuals can contribute up to $5,000 per year to a Trump account. Contributions must be made with after-tax dollars, similar to Roth IRAs. That means you don’t receive a tax deduction when you contribute, but the money can grow tax-deferred until withdrawal.
Eligibility
The bill does not specify detailed income limits or restrictions on who can open or contribute to a Trump account. As currently written, the account appears available for children born between 2025 and 2028, with the goal of saving for general purposes. It does not specify ties to specific goals, like retirement or education.
Penalties or Restrictions on Withdrawals
Withdrawals from Trump accounts would be locked until age 18. At that time, account holders may access up to half of the balance, with the remainder available at age 25. Non-qualified withdrawals would be subject to income tax and may also face a 10% penalty.
While early withdrawal penalties under traditional retirement accounts do not apply, these accounts still carry specific tax treatment. Qualified distributions may be taxed as net capital gains, which could benefit lower-income investors. However, favorable tax treatment applies only to amounts that meet defined limits, likely outlined in section 530A(d)(2). Withdrawals that exceed these limits or are used for non-qualified purposes may lose preferential treatment and face ordinary income taxation and penalties.
What This Can Mean for Your Financial Planning
For your financial planning, the current tax proposal means that while existing long-term capital gains rates remain unchanged, you should prepare for potential shifts when TCJA provisions expire after 2025. Without congressional action, capital gains could be taxed at ordinary income rates, which may increase tax liability for some investors. This makes it important to track future legislative changes and consider how they could affect taxable investment strategies.
Additionally, the introduction of the Trump account—a tax-advantaged savings vehicle for children—creates a new option for long-term saving. Contributions are made with after-tax dollars and grow tax-deferred. Qualified withdrawals are taxed as long-term capital gains, potentially resulting in lower tax rates than traditional retirement accounts that treat distributions as ordinary income. This structure may benefit savers in lower capital gains brackets.
However, the account has restrictions. Funds are locked until age 18, when half can be withdrawn, with the remainder available at 25. Non-qualified withdrawals are subject to income tax and may also face a 10% penalty. These limitations should be factored into long-term planning, especially for families looking to use these accounts as part of a broader investment strategy.
Bottom Line
The proposed tax plan is still moving through Congress, but it could have long-term implications for your financial strategy. Features like the Trump account may offer tax-advantaged growth and favorable capital gains treatment, especially when combined with other savings tools. However, important details—such as rules for qualified withdrawals—remain unclear.
Tax Planning Tips
- A financial advisor can help your tax liability for investments. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.
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