| The IRS recently released proposed regulations regarding a new tax-advantaged savings account for children called a “Trump Account.” These accounts were created under the One Big Beautiful Bill Act and are intended to help families start saving early for a child’s future.
What is a Trump Account?
The government plans to provide a one-time $1,000 contribution (Pilot Program) for eligible children that are U.S. citizens and are born between 2025 and 2028, if an account is opened and the election is made.
What contributions can be made?
- Additional contributions of up to $5,000 annually, adjusted for inflation, are permitted up to the year before a child turns 18.
- Employers can contribute up to $2,500 annually towards the $5,000 cap. The employer is allowed a deduction for the contribution, and it is not taxable to the employee.
- Children born before 2025 are eligible to have a Trump Account opened for them but they will not receive the $1,000 Pilot Program money. The accounts could be used to receive potential employer contributions and potential contributions from charitable organizations.
When can funds be withdrawn?
- Funds grow tax free during a growth period that generally ends in the year the child turns 17. No distributions are permitted before 18.
- Once a child turns 18, the account follows standard IRA withdrawal rules, including potential taxes and penalties for early withdrawals.
- Exceptions to early withdrawal penalties after 18 include higher education expenses, first-time home purchase, birth or adoption, disability, etc.
How the Election Works
- The election to open an account or receive the $1,000 contribution can be made using Form 4547 and filed with your tax return, or through a separate electronic application.
- If this applies to your child, and you would like to open an account, please let us know.
- The $1,000 government amount is deposited directly into the child’s Trump Account and cannot be refunded in cash.
We will continue monitoring developments and will provide updates once final rules are issued.
If you have questions about how this may apply to your family, feel free to reach out to us. |
