Trump accounts are a new tax-advantaged investment account for US citizens under age 18 with no income restraints on contributions!
Who qualifies for an account?
Any child can have an account opened for them at any time before the year they turn 18 if they have a Social Security number. This is an important distinction. They are eligible up to the calendar year they turn 18 instead of up to their 18th birthday.
Who can open an account?
- Parent
- Guardian
- Grandparent
Who can contribute to an account?
Anyone can contribute to the account once it's open, but only the account opener will serve as custodian until the child reaches age 18. There are no income limitations on contributions, and the children do not need to earn income to receive contributions.
How much can you contribute?
- Individual contributions- can not exceed $5000 total for each child annually.
- Employer contributions- can not exceed $2500 per employee annually. These contributions do count towards the annual limit of $5000. (If the employee has more than one child, they will need to elect how their contribution is divided.)
- Government/Nonprofit contributions- no limit, but your child will have to meet the criteria to receive the contribution. Current programs are outlined below.
- Pilot Contribution- $1000 from the federal government for each child born between Jan 1, 2025, and Dec 31, 2028.
- Dell Contribution- $250 to the first 25M qualifying children. They have restricted it to children 10 and under who did not receive the pilot contribution and who live in zipcodes with a median income below $150,000.
What is the tax advantage?
- Individual contributions- no tax deduction for the contributor. The child receives the contribution tax-free but will be taxed at ordinary income rates on the gains when withdrawals are made. This is similar to nondeductible contributions to a Traditional IRA. The account custodian (at this time Robinhood) will be responsible for tracking the cost basis.
- Employer contributions- tax-deductible for the employer. The child will be taxed at ordinary income rates on both the contribution and the gains when withdrawals are made.
- Government/Nonprofit contributions- The child will be taxed at ordinary income rates on both the contribution and the gains when withdrawals are made.
When can withdrawals be made?
Withdrawals can be made once the child reaches age 18. The withdrawals will follow the same rules as a Traditional IRA. This includes exceptions from penalties for withdrawals before age 591/2 for education, first-time home buyers, etc. If the child should pass away, a total withdrawal will be made at that time, and the account will be closed.
How is it invested?
The custodian will pick from a selection of mutual funds and ETFs that track the S&P 500.
How do I open an account?
You can request that an account be opened for your child and/or the pilot contribution of $1000 if they qualify by submitting Form 4547 to the IRS. You will then download the Trump Account app or go to trumpaccount.com to set up credentials and manage your investment choice and contributions. Both the link to the app and the form can be found at https://www.trumpaccounts.gov/.For now, all accounts will be set up with Robinhood, the chosen firm by the federal government. At a later date, you will be able to transfer the accounts to your chosen custodian.
How can my advisor help?
Please contact your advisor to discuss how a Trump Account might fit into your financial plan. Since the investments are limited, we will not be managing these accounts. However, we can track these accounts as part of your plan and assist in planning your contributions.
Trump Account contributions start July 4th! For more information or if you have issues opening an account, you can contact the Trump Account call center at 866-USA-4547.
