Trump Accounts (IRC §530A) are newly introduced child investment vehicles that offer tax-deferred growth, with automatic conversion to IRA status at age 18, and can be funded by the government, charitable organizations, employers, and family members within specified limits. Contributions from individuals and employers are limited to $5,000 per beneficiary annually, but the accounts raise questions regarding gift tax implications, as contributions may be considered a future interest not eligible for the annual exclusion. Distributions are subject to income tax and IRA rules, with significant differences from Section 529 plans, which generally offer more broad tax advantages for educational expenses. The accounts are expected to be operational by July 2024, with ongoing analysis needed to clarify tax and transfer rules.

Trump Accounts (IRC §530A): Estate, Tax, and Wealth Planning Considerations

I’m ACTEC Fellow Connie Eyster from Boulder, Colorado. Trump Accounts, under Internal Revenue Code 530A, introduces a new child investment vehicle with tax-deferred growth, contribution limits, and automatic conversion to a traditional IRA at age 18. While designed for long-term savings, these accounts raise important questions about beneficiary designations, trust coordination, income tax timing, and transfer planning.

ACTEC Fellow Susan Bart of Arizona and Illinois joins this episode to examine the technical implications estate planners and wealth advisors need to understand before clients begin funding them.

Who Qualifies for the $1,000 Government Seed Funding?

Susan Bart: *Thank you, Connie. The Trump Accounts add a new layer of complexity to the already complex area of different vehicles for saving for minors. The Trump Accounts will be up and running, we’re promised, by July 4th of this year, one year after the bill was signed into law. And one of the big allures of the Trump Accounts is that *every US citizen who is born during 2025 through 2028 and has a Social Security number may open up one of these accounts and elect to get $1,000 of funding from the government to start their Trump Account.

How to Open a Trump Account: IRS Form 4547 and Online Applications

Parents, in order to open a Trump Account, the guardian or parent will need to complete an application, and there already is a draft of IRS Form 4547 to open a Trump Account, but there also will be an online mechanism for opening Trump Accounts as well. And there actually are two different elections that will need to be made for children born in 2025 through 2028. One is the election to open an account, and then there’s a second election that needs to be made in order to qualify for the thousand dollars of seed money. The program is in development yet. We don’t know which financial institutions will be offering the Trump Accounts and managing the investments.

We do know that the Trump Accounts have to be invested in broad-based equity funds, like the S&P 500, that are primarily invested in US equities and that have very low-cost ratios of less than 10 basis points for the investment side. And we are all waiting to hear what institutions will be offering these Trump Accounts.

Who Can Contribute to a Trump Account?

Contributions to the accounts can be made by four different players.

#1 Contributions by the US Government

One is the government, and an example of that is the seed deposits for certain beneficiaries.

#2 Contributions by Charitable Organizations

In addition, charitable organizations can decide to make contributions to Trump Accounts so long as they are choosing a class of beneficiaries that are broad-based in a particular geographic area, and the class needs to be approved by the government before they go about this.

For example, Michael and Susan Dell of Dell Computers will contribute $6.25 billion to Trump Accounts. My understanding is that they will be for children under the age of 10 in certain geographic areas with net income on average less than $150,000, and they will be for beneficiaries who are not getting the $1,000 government seed money. And other charitable entities may well follow and also offer some funding for these Trump Accounts.

#3 Contributions by Employers

The other two classes of people who can fund Trump Accounts are: one, employers. So an employer can decide who offer as a benefit contributing to a Trump Account for the employee, obviously if they’re a teenager and under 18, or for the children of an employee. The employer, though, is limited to no more than $2,500 a year per employee. So that is one cap.

#4 Contributions by Individuals and Family

The last group that can fund Trump Accounts is individuals, which most likely to be family members of the beneficiary, such as parents and grandparents. And they can also contribute to the Trump Account, except that total contributions from individuals and employers cannot exceed $5,000 per beneficiary each year. So, it’s a rather limited amount that can be contributed.

Contribution Limits and Gift Tax Considerations

One alert on the individual side is, if you think about the Gift Tax Annual Exclusion, a contribution to a Trump Account should not qualify, because you cannot withdraw that money until the beneficiary is age 18. That is, in my mind, the very definition of a “future interest” and not a “present interest.” Section 529 has very particular language in the statute that says, well, “regardless of the normal rules, contributions to 529 accounts count towards the Gift Tax Annual Exclusion.” We are missing that language in the Section 530A, which ACTEC has pointed out now twice in comments, both on the statute and on Notice 2025-68. I expect that there will be either a technical correction or regulations to make clear that you are not expected to file a Gift Tax Return and use a portion of your lifetime exclusion to make a contribution into a Trump Account.

Trump Account Distribution Rules: When Can Funds Be Accessed?

What happens with the account while the beneficiary is growing up is the money will stay in the account. There may be some limited options to roll-over from one Trump Account to another, but there are no permitted distributions, with one small exception. In the year that the beneficiary attains age 17, if they have a disability, you can do a rollover to an ABLE account. Otherwise, money cannot be taken out until the year in which the beneficiary attains age 18, and at that point, what happens is it automatically becomes an IRA for the beneficiary. Its source is still from the Trump Account, but the normal IRA rules would apply. And there is the rub.

One, the 18-year-old can take a distribution from the IRA. It will be subject to income tax. It will be subject to a penalty, but no one can stop them from taking a distribution if they think they have a good use for the money, whether it’s taking a beach vacation, a ski vacation, or a trip to the casino.

The other thing to consider is that the distributions are going to be subject to ordinary income tax. The only exception is the amount of contributions that were contributed by individuals, by family members. That’s not taxed, but the growth on that, any employer contributions, any charitable contributions, and the seed money from the government, whatever that grows to, all the rest is subject to ordinary income tax when it is distributed. And the ordinary IRA rules apply, so there will be a penalty if the beneficiary in general takes funds out prior to age 59 and a half, with limited exceptions in the IRA rules, such as funding higher education, disaster relief, birth or adoption of a child, and a little bit for first-time home ownership. But in general, these are intended as very long-term investments that are not going to be taken out until the beneficiary reaches a retirement age.

Trump Accounts vs. Section 529 Plans: Which Is Better for Families?

When you compare the Trump Accounts to Section 529 accounts, in general, I think you’re going to prefer a Section 529 account so long as there might be some type of educational need that the beneficiary will have. 529 accounts permissible qualified distributions keep getting broader as time goes by. Qualified distributions now include not only college and graduate school, they also include primary and secondary school, and related expenses up to $20,000 a year per beneficiary. You can roll-over from a 529 account up to $35,000 into a Roth IRA for a beneficiary. You can change the beneficiary, and if something comes out of a 529 account, as a qualified distribution, there is no federal income tax and usually no state income tax on the distribution. In contrast, anything coming out of a Trump Account, except for the actual amount of contributions put in by individuals, is going to be subject to income tax when it’s distributed.

In general, you may want to fund the 529 accounts before you start putting your own money in a Trump Account, and in any event, wait until we get clarification on the gift tax annual exclusion question. Of course, if you have a beneficiary who qualifies to receive the government seed funds or funds from a charity in a Trump Account, you may want to open a Trump Account to receive that essentially free money. We will keep following the Trump accounts as we learn more and hope that they are up and running and we’re ready to receive contributions starting in July.

*Connie Eyster: *Thanks, Susan. What a nice rundown and bullet point summary of these new investment accounts. We really appreciate your time and expertise today.

Resources Regarding Trump Accounts

IRS Trump Accounts(IRS website)trumpaccounts.gov(official website)ACTEC’s Comments

Video resources to Share with Your Clients

Understand when gift tax comes into play, how the age of the recipient impacts gift tax, efficient ways to transfer property, the annual exclusion and more from experts.Gift Tax, the Annual Exclusion and Estate PlanningTax experts offer recommendations to grandparents and benefactors on how to contribute to a student’s education without jeopardizing grants and paying taxes.How to Pay for College for a Grandchild or Someone ElseEstate experts answer parents’ and families’ questions about how 529 Plans work and what you need to keep in mind when saving for higher education.529 Plan Pros and ConsHow to transfer assets to minor children, the Uniform Transfers to Minors Act (UTMA), 529 plans, naming a caregiver for a minor child in a will and more.Transferring Assets to a Minor ChildLearn about the significance of gift tax exemption and estate tax exemption when considering a lifetime gift in estate planning.Who Pays Taxes on a Gift?

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Trump Accounts (IRC §530A): Estate, Tax, and Wealth Planning Considerations - ACTEC