How Trump Accounts Work
With Trump Accounts back in the headlines, we figured it’s a good time to go over them again. Let’s get into what they offer, and what they don’t.
First, eligibility:
To open a Trump Account, the beneficiary must have a valid social security number and must not have turned 18 the year the account is established. That part is straightforward. Where it gets more complicated is the $1,000 federal seed money you’ve probably been hearing about.
To qualify for the seed money, the child must be born between January 1, 2025, and December 31, 2028. They also need to be a U.S. citizen. Another important wrinkle that gets omitted when Trump Accounts are discussed: being eligible for the money does not mean it’s automatically deposited to the account. IRS Form 4547 needs to be filed by someone claiming the child as a qualifying child, usually a parent.
Further in the weeds:
Because Trump Accounts are so new, the IRS is still ironing out details. There’s time for the finer points to change as rules are finalized.
The reception and dialogue around Trump Accounts seems mixed. Supporters highlight that the $1,000 seed money is noteworthy. Though critics point out that the $1,000’s growth depends on how much owners contribute after that initial deposit, and that income treatment on them is less favorable than 529s or Roth IRAs.
We bring this up all the time, and it’s true here as well: how relevant a Trump Account is to you, and how much energy you should give it comes down to your circumstances, goals, and how the rules apply to your specific situation. It’s not an exciting statement, but it’s often where the answers lie.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Laurel Financial Group is a separate entity from WFAFN.
This material is intended for informational and educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.
First, eligibility:
To open a Trump Account, the beneficiary must have a valid social security number and must not have turned 18 the year the account is established. That part is straightforward. Where it gets more complicated is the $1,000 federal seed money you’ve probably been hearing about.
To qualify for the seed money, the child must be born between January 1, 2025, and December 31, 2028. They also need to be a U.S. citizen. Another important wrinkle that gets omitted when Trump Accounts are discussed: being eligible for the money does not mean it’s automatically deposited to the account. IRS Form 4547 needs to be filed by someone claiming the child as a qualifying child, usually a parent.
Further in the weeds:
- The yearly contribution limit is $5,000 (The $1,000 seed money doesn’t count towards this)
- Contributions are after-tax and not deductible
- This does not replace a 529
- Their growth is tax deferred, not tax free
- Earnings, the $1,000 seed money, and employer contributions are generally taxed as ordinary income
- No individual stocks, bonds, sector/foreign funds, or crypto
- Investments must track a broad U.S. equity index
- No withdrawals until the year the child turns 18
- The year the child turns age 18, the Trump Account will convert to a regular traditional IRA that the child will then control
- Employers can add up to $2,500 per year per employee, which counts toward the $5,000 yearly limit
- Once the account converts to a traditional IRA, there’s a 10% penalty for withdrawals before age 59 and-a-half (standard IRA exceptions can apply)
Because Trump Accounts are so new, the IRS is still ironing out details. There’s time for the finer points to change as rules are finalized.
The reception and dialogue around Trump Accounts seems mixed. Supporters highlight that the $1,000 seed money is noteworthy. Though critics point out that the $1,000’s growth depends on how much owners contribute after that initial deposit, and that income treatment on them is less favorable than 529s or Roth IRAs.
We bring this up all the time, and it’s true here as well: how relevant a Trump Account is to you, and how much energy you should give it comes down to your circumstances, goals, and how the rules apply to your specific situation. It’s not an exciting statement, but it’s often where the answers lie.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Laurel Financial Group is a separate entity from WFAFN.
This material is intended for informational and educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.