As we move closer to the July 4, 2026 “go-live” date for Trump accounts, we have further clarity on the framework of this new savings program. However, with this clarity comes additional questions and the anticipation of future guidance from the Treasury and IRS. This article aims to explain what we know currently and to highlight some of the remaining questions we have about Trump accounts.
What is a Trump Account?
At its core, the Trump account is a Traditional IRA that is broken down into two phases. The first phase is known as the growth period, which lasts from a child’s birth to age 18. The growth period provides special rules for contributions, investments, and distributions that are all designed to help broaden access to retirement savings earlier in a child’s life. One key difference between a traditional IRA and a Trump account is that earned income isn’t a requirement for Trump accounts during the growth period. After the growth period, Trump accounts revert to standard IRA rules, and the special rules cease to apply.
Who Is Eligible?
Any child under age 18 with a valid Social Security Number is eligible for a Trump account. These custodial-style accounts designate the child owner and beneficiary but are managed by a parent or legal guardian until the child reaches age 18. Parents can make the election to open a child’s account by filing Form 4547 with their tax return or on the Trump accounts website: trumpaccounts.gov.
What are the Contribution Rules?
Contributions to Trump accounts can be made by individuals, employers, pilot program funding, governmental or charitable organizations, and rollovers (from other Trump accounts).
Annual contributions up to $5,000 per child may be made by any individual (parent, grandparent, friend, etc.). Individual contributions are made on an after-tax basis, and no tax deduction is allowed in the year of contribution.
Employers may offer a salary reduction program for employees to contribute on a pre-tax basis. Employers may contribute up to $2,500 annually per employee, which may be allocated among multiple children. Employer contributions count toward the $5,000 annual limit for individuals. Additional Treasury and IRS guidance are required to define the coordination of employer contributions and salary deferral programs with existing law.
The federal pilot program will provide $1,000 to any U.S. citizen born between January 1, 2025, and December 31, 2028. Parents need only to open a child’s account to receive the $1,000 deposit.
Contributions made by governmental and charitable organizations allow for states and philanthropic organizations to support specific groups of account beneficiaries. There have been recent headlines about various organizations, celebrities, and jurisdictions that are pledging funds to help seed Trump accounts. Specifics and timing of these pledges remain unclear, but establishing a Trump account may make your child eligible if they fall into specific qualifying groups of beneficiaries.
Pilot program and governmental/charitable contributions do not count toward the annual $5,000 contribution limit. These contributions are not considered income at the time of funding but are treated as pre-tax for distribution purposes.
How Will the Accounts Grow?
Investment allocations are limited inside Trump accounts. Under current guidance, the investment choices are limited to US index funds. The intent is to encourage long-term growth with low-cost expense ratios.
Withdrawals and Tax Implications
The child cannot withdraw any funds before they reach age 18. On January 1st of the year the child turns 18, the Trump account is subject to standard IRA rules. The child may leave the account a Trump account or roll the balance to a new IRA. Funds distributed before age 59 ½ could be subject to a 10% penalty. There are exceptions to this rule for things like education, first time home purchase, birth or adoption, and other special circumstances.
Distributions from IRA accounts are subject to ordinary income tax rates. Depending on the source of contributions, an account may have a mix of both pre-tax and after-tax contributions. Tax liability on distributions will vary based on contribution sources and earnings.
Additional planning considerations:
- Trump accounts should be carefully considered against other savings options for children like custodial brokerage accounts, UGMA/UTMAs, 529s, or Roth IRA accounts.
- Further guidance is required to determine if contributions from individuals count towards annual gift exclusions.
- After the child turns 18, they can continue to contribute to the account, but standard IRA contribution rules apply and they must have earned income.
- After the growth period, there may be a significant opportunity for Roth conversions when a young adult is in a lower marginal tax bracket.
- After age 18, if the now *legal* adult is taking out distributions but is still claimed as a dependent of the parent, there may be a kiddie tax implication, meaning that the parents’ tax rate will apply to the distributions. This is also a consideration for any Roth conversions.
- Trump accounts are likely to be considered student assets and may impact eligibility for financial aid through FAFSA.
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