As parents prepare for a new school year, many are thinking about more than school supplies and class schedules. They are also considering how to prepare for their child’s long-term future. The new kid on the investment block is the Trump Account. As with any new kid, it is natural to be skeptical. So, let’s break down how it works and whether it may be a worthy addition to your child’s savings plan.
Trump Accounts are individual retirement accounts established for children, allowing families to jump-start savings before their children enter the workforce. An account may be established for a child who has not turned 18 by the end of the calendar year in which the election is made and who has a valid Social Security number. The child owns the account, while an authorized adult manages it during the child’s minority. Under a federal pilot program, the government will make a one-time $1,000 contribution for eligible U.S.-citizen children born from Jan. 1, 2025, through Dec. 31, 2028—but the required election must be made.
Parents, grandparents and others may contribute, subject to an aggregate annual limit of $5,000. Qualifying employer contributions may be as much as $2,500 and count toward that limit. The funds generally must be invested in qualifying index funds and cannot be withdrawn before the calendar year in which the child turns 18. After that point, the account is generally treated as a traditional IRA, and applicable withdrawal and tax rules apply.
Trump Accounts will not replace 529 plans, UTMA custodial accounts or trusts. Instead, they provide another way to save for a child’s future with a focus extending beyond education expenses. Families should consider the account’s purpose, tax treatment and place within their overall estate plan.
This new kid may well be worth getting to know.
Attorney Samantha Stevenson is an attorney at Hammerle Morris Law Firm, a boutique law firm offering services in estate planning, probate, guardianship, business law, litigation, and real estate. Contact her at (972) 436-9300. This article does not constitute as legal advice.
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