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Trump Accounts: A Strategic Wealth Builder for Your Children
Trump Accounts: A Strategic Wealth Builder for Your Children
With the passage of the Working Families Tax Cuts Act—often referred to as the One Big Beautiful Bill Act (OBBBA)—President Trump has introduced a significant new vehicle for generational wealth planning: Trump Accounts. For families here in Peekskill and throughout New York, this legislation opens a unique door to tax-advantaged savings for children under 18.
Perhaps most notable is the pilot program designed for children born between January 1, 2025, and December 31, 2028, which includes a $1,000 government contribution to jumpstart their financial future. At TaxxGuy LLC, we see this as a critical planning opportunity for our high-net-worth and small business clients looking to establish a financial foundation for the next generation.
Overview of Trump Accounts
Think of a Trump Account as an innovative hybrid savings vehicle, sharing DNA with Individual Retirement Accounts (IRAs), but specifically engineered to build wealth from birth. For eligible children born from 2025 through 2028, these accounts offer the option to receive a one-time $1,000 government seed contribution.
Beyond the seed money, the structure allows for additional private contributions of up to $5,000 annually (inflation-adjusted) until the year before the child turns 18. To ensure steady, long-term growth, funds within these accounts are invested in broad, low-cost stock market index funds. This strategy is designed to capture market growth over nearly two decades before the funds are accessed.
Eligibility and Contribution Rules
Inclusivity is a key feature of this program. Any child under age 18 with a valid Social Security number is eligible for a Trump Account. While the account is legally held by the child, it is managed by a parent or guardian until adulthood.
1. Who Can Contribute?
The contribution landscape is flexible, allowing a "it takes a village" approach to funding:
diverse Contributors: Parents, grandparents, guardians, friends, and the children themselves can contribute. The standard annual cap starts at $5,000 per child, subject to future inflation adjustments.
Tax Treatment of Contributions: generally, contributions are not tax-deductible for the individual donor (similar to a Roth IRA), though there is a significant exception for employers.
Employer Incentives: For our small business owners and entrepreneurs, this is a key detail. Employers can contribute up to $2,500 annually toward a child’s $5,000 cap. Crucially, the employer receives a deduction for this contribution, and it is considered non-taxable to the employee. This presents a powerful compensation planning strategy.
Systematic Safeguards: Because contributions can come from multiple sources, staying under the $5,000 annual limit requires diligence. The legislation mandates robust safeguards, including a centralized record-keeping system to monitor aggregate contributions in real-time. Contributors will likely need to register planned contributions to flag potential overages. We also anticipate automated alerts for guardians as the account nears its $5,000 threshold. For our clients, we recommend establishing clear communication channels with family members to avoid administrative headaches and maintain the integrity of the account.
2. Qualified Class Contributions
The framework also empowers qualifying charitable organizations and government entities (states, localities, tribes) to make contributions. These entities must designate a "qualified class" of beneficiaries—for example, all children born in a specific year or residing in a specific zip code—rather than selecting individuals ad hoc.
This structure allows for large-scale philanthropic impact directly into these tax-advantaged vehicles.
Example: Michael and Susan Dell, through the Michael & Susan Dell Foundation, are contributing $6.25 billion to seed Trump Accounts with $250 for children who are 10 or under who were born before Jan. 1, 2025. The pledged funds will cover 25 million children age 10 and under in ZIP codes with a median income of $150,000 or less.
The $1,000 Government Seed Contribution
The headline feature of this program is the federal government's one-time $1,000 contribution. This capital is intended to harness the power of compound interest from infancy. However, strict criteria apply to this specific benefit:
Specific Birth Window: The child must be born on or after January 1, 2025, and before January 1, 2029.
Citizenship Requirement: The child must be a U.S. citizen with a valid Social Security number.
Affirmative Election: It is not automatic. A parent or guardian must elect to open the account.
One-Time Event: This is a singular initial deposit, not a recurring annual grant.
Exempt from Caps: This $1,000 does not count toward the $5,000 annual private contribution limit.
Tax Status: While it grows tax-deferred, the seed money (and its earnings) is considered pre-tax. It will be taxed as ordinary income upon withdrawal after age 18.
Note for older children: If you have children born before 2025, they are still eligible for a Trump Account and can receive employer or charitable contributions, but they will not qualify for the $1,000 government seed.
Investment Strategy
Simplicity and cost-efficiency are the mandates here. Trump Accounts are restricted to investing in broad U.S. equity index funds. These funds are prohibited from using leverage and must charge minimal fees. The goal is transparency and consistent market participation without the risks associated with speculative trading or high expense ratios.
Tax Implications and Distributions
For our clients focused on long-term tax planning, understanding the nuances of these accounts is vital. The tax treatment is a hybrid: contributions are generally non-deductible (like a Roth), but earnings grow tax-deferred (like a Traditional IRA).
Distributions Before Age 18
Generally, funds are locked until the beneficiary reaches adulthood. This ensures the assets are preserved for their intended purpose.
Exception: In the tragic event of a beneficiary's death, funds can be transferred to the child’s estate or a designated survivor. We strongly advise clients to have clear beneficiary directives in place to ensure these transfers align with your broader estate plan.
Distributions After Age 18
Once the child turns 18, the withdrawal rules become specific:
After-Tax Contributions: Money contributed by parents or family (which was already taxed) can be withdrawn tax-free.
Pre-Tax Amounts: Investment earnings, the $1,000 government seed, and employer/charitable contributions are taxed as ordinary income upon withdrawal.
Early Withdrawal Penalty: If taxable distributions are taken before the beneficiary reaches age 59½, a 10% penalty generally applies on top of the income tax.
Penalty Exceptions (Tax-Exempt Scenarios): While income tax will still apply to the pre-tax portion, the 10% penalty is waived if funds are used for specific "qualified expenses" after age 18:
Higher Education: Tuition, books, and fees for post-secondary education.
First-Time Home Purchase: Up to $10,000 toward a down payment.
Birth or Adoption: Up to $5,000 for qualified expenses.
Disability: Expenses related to the beneficiary’s disability.
Hardship: Specific exceptions for terminal illness or disaster recovery.
Account Management and Transfers
To establish a Trump Account, guardians will utilize IRS Form 4547, Trump Account Election(s). This form can be filed with your 2025 tax return. Alternatively, an online application at trumpaccounts.gov is expected to launch in mid-2026. Note that accounts cannot officially begin accepting contributions until July 4, 2026.
Initially, accounts are held with a designated Treasury agent. However, flexibility is built into the system: once established, accounts can be transferred to a preferred brokerage. This transferability allows our clients to consolidate family assets with their preferred financial institutions, streamlining management and oversight.
IMPORTANT FILING INSTRUCTION
If you have children under 18 and wish to elect a Trump Account, Form 4547 must be filed with your tax return. The form accommodates up to two children, and multiple forms may be used for larger families.
Crucial Step: If your child was born between January 1, 2025, and January 1, 2029, you must check the specific box on the form to claim the $1,000 government contribution. Missing this checkbox could mean forfeiting the seed money.
We Are Here to Guide You
At TaxxGuy LLC, we believe that each tax situation is unique. We don't use a cookie-cutter approach. Whether you are a dual-income professional family or a digital-first business owner, integrating Trump Accounts into your financial strategy requires careful planning.
If you have questions about Form 4547, employer contribution strategies, or how this aligns with your current estate planning, please reach out to us. Let’s help your family grow with less stress and more financial control.
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