Trump Accounts are a new savings vehicle, created as a new federal pilot program under the One Big Beautiful Bill Act (OBBBA) to provide a financial head start for children. For tax professionals, understanding the nuances of these accounts is crucial for advising clients effectively, so we're breaking down the key features, tax implications, and practical considerations of Trump Accounts.
What are Trump Accounts?
Trump Accounts are government-backed savings accounts for children, seeded at birth with a one-time $1,000 government deposit for eligible children born between 2025 and 2028. Additional annual contributions (up to $5,000 per child) can be made by parents, employers, and certain organizations until the child turns 18. Investments must be made in low-fee mutual funds or ETFs, disallowing sector-specific funds and leverage.
The primary goal is to help children build a nest egg that can be used for a variety of future expenses when they reach adulthood from education and homeownership to starting a business, or even retirement. While eligible children will receive the $1,000 seed money, all parents or caregivers can open Trump Accounts for their children.
Key features of Trump Accounts
Understanding the mechanics of these accounts is the first step in guiding your clients. Here are the core components:
Initial federal deposit
The government will deposit $1,000 into a Trump Account for every eligible child born between 2025 and 2028. This seed money is intended to kickstart the savings journey, but this is a pilot program, so it may not be extended after 2028.
Eligible contributors
Parents, relatives, employers, charitable organizations, and even government entities can contribute, allowing for multiple avenues to fund a child's account.
Contribution limits
The annual contribution limit is set at $5,000 per year. Employers may contribute up to $2,500 which does go towards the $5,000 limit, but contributions from government entities do not go towards the limit. This cap is designed to keep the program focused on modest, long-term growth.
Withdrawal uses
Money in Trump accounts can be accessed by the child once they turn 18 (see taxation information below) for education, including college, trade schools, or licensing and certification programs, opening a business, or purchasing a first home. Or, they can keep it for retirement, accessing it at the age of 59.5, like traditional or Roth IRAs.
Withdrawals before 18 are prohibited except under limited circumstances, like death or disability.
Investment rules and restrictions on Trump Accounts
Unlike some savings vehicles that offer broad investment freedom, Trump Accounts come with specific rules designed to promote stable, low-cost growth and mitigate risk.
Mandatory investments
All funds within a Trump Account must be invested. The regulations specify that these investments must be in low-fee mutual funds or exchange-traded funds (ETFs) that track broad market indexes, such as the S&P 500 or a total stock market index.
Prohibited investments
To protect the account's principal and encourage diversified growth, certain investments are explicitly forbidden. Account holders cannot invest in sector-specific funds (e.g., technology or energy funds), individual stocks, or bonds. The use of leverage or margin is also strictly prohibited. These rules aim to simplify the investment process for account holders and ensure that the funds are managed conservatively over the long term.
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Tax implications of Trump Accounts
For tax practitioners, the tax treatment of these accounts is the most critical area of focus. Trump Accounts have a unique structure that combines elements of both tax-deferred and taxable accounts.
Contributions
Contributions made to a Trump Account are not tax-deductible at the federal level. This is an important point of clarification for clients who may assume a deduction is available, similar to traditional IRA contributions.
Growth
The investments within the account grow on a tax-deferred basis, and there is no annual taxation of interest, dividends, or gains. This offers a significant advantage, as it allows earnings, dividends, and capital gains to compound over time without being subject to annual taxes. This deferral can lead to substantially higher returns over the decades the account is active.
Withdrawals
Qualified withdrawals (ie: withdrawals for qualified expenses after the age of 18 or after age 59.5) of earnings and contributions from employers, charities, or government entities are taxed as ordinary income, but withdrawals of after-tax family contributions are not taxed as income. Instead, they are returned tax-free.
Withdrawals before the age of 59.5 or for non-qualified purposes may be subject to a 10% early penalty.
Trump Accounts vs. Other Savings Vehicles
How do Trump Accounts stack up against more familiar savings options? Here is a brief comparison to help you advise clients on the best strategy for their family's needs.
529 Plans
529 plans also offer tax-deferred growth, and withdrawals are tax-free at the federal level if used for qualified education expenses. This makes them a superior choice for families specifically saving for college. However, Trump Accounts offer more flexibility, as the funds can be used for more purposes, though they are less tax-advantaged as all gains are taxed at ordinary rates upon withdrawal.
UTMA/UGMA Accounts
Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts are custodial accounts that hold assets for a minor. Earnings are typically taxed at the child's tax rate (called the "kiddie tax"), which can be advantageous as it only applies to unearned income over threshold and is subject to parental rate. However, the assets become the child's legal property upon reaching the age of majority (18 or 21, depending on the state), giving them full control. Trump Accounts remain tax-deferred until withdrawal and do not have this automatic transfer of control. Instead, they require a change in account designation after the child turns 18.
The primary advantage of a Trump Account is the initial $1,000 government deposit and more flexible withdrawal rules, offset by the ordinary income tax treatment on distributions.
Practical considerations for tax professionals
As your clients begin to ask about Trump Accounts for their children or grandchildren, you can provide value by offering clear, actionable guidance.
Monitor contribution limits
Advise clients to keep careful records of all contributions made to a child's Trump Account from various sources. Since the $5,000 annual limit is cumulative with a $2,500 sublimit from employers and the exception of charitable and government contributions, coordinating among family members is essential to avoid excess contributions.
Long-term tax planning
Help clients understand the tax implications of withdrawals and how to plan strategically. For example, it might be advantageous for the beneficiary to take withdrawals during lower-income years to minimize the tax burden.
Integration with overall financial strategy
A Trump Account should be one component of a broader family savings plan. Discuss how it fits alongside other vehicles like 529 plans, Roth IRAs for minors, and custodial accounts to achieve different financial goals.
Stay informed on program changes
Future Treasury guidance will likely refine the default investments, allowable platforms, and reporting. Additionally, as a pilot program, the rules governing Trump Accounts could evolve. It is essential to stay updated on any legislative changes or new regulations issued by the Treasury Department that might affect these accounts.
Staying ahead of tax law changes
Trump Accounts are just one of the many changes occurring within the tax landscape, and staying ahead is a necessity to provide competent and trustworthy client service. Becker can help you stay ahead of the curve with CPE courses and IRS-approved CE. For more about the One Big Beautiful Bill, consider these CPE courses:
- The One Big Beautiful Bill: Business Provisions
- The One Big Beautiful Bill: Individual Provisions
- Tax News Now: Tax Topics with Kasey Pittman
With Beckers Prime CPE subscription, you'll access over 700 on-demand courses, 1,000 live annual webcasts, and weekly CPE podcasts!
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