{"id":18279,"date":"2025-07-18T12:04:50","date_gmt":"2025-07-18T12:04:50","guid":{"rendered":"https:\/\/finderica.com\/?p=18279"},"modified":"2025-07-18T12:04:50","modified_gmt":"2025-07-18T12:04:50","slug":"big-beautiful-bill-childrens-trump-account-rules-are-complicated","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=18279","title":{"rendered":"‘Big beautiful bill’ children’s Trump account rules are complicated"},"content":{"rendered":"
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President\u00a0Donald Trump’s massive\u00a0tax and spending package<\/a> includes a new child\u00a0savings account with a one-time deposit of $1,000 from the federal government for newborns.<\/p>\n

The premise is simple: So-called “Trump accounts,” a type of tax-advantaged savings account, will be available to all children who are U.S. citizens starting in July 2026.\u00a0<\/p>\n

Beyond that, the rules get somewhat confusing, tax experts say.<\/p>\n<\/div>\n

<\/a>Funding a Trump account<\/h2>\n
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Under Trump’s “big beautiful bill,” children born in 2025 through 2028 will also receive a $1,000 deposit each in their Trump account, funded by the\u00a0Department of the Treasury<\/a>. There are no income requirements.<\/p>\n

Parents and others will be able to contribute up to $5,000 a year in after-tax dollars up until the year before the beneficiary turns 18. Employers could also contribute up to $2,500 to an employee’s account, which wouldn’t be counted as income to the recipient. Both caps will be indexed to inflation.<\/p>\n

The balance will be invested in a low-cost fund that tracks a U.S. stock index.<\/p>\n

From a tax perspective, the accounts would function like an individual retirement account. Earnings grow tax-deferred, and qualified withdrawals are generally taxed as\u00a0ordinary income.<\/p>\n<\/div>\n

<\/a>Tapping the money in a Trump account<\/h2>\n
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Here’s where it starts to get tricky. Trump account funds may not be easily accessed for decades.<\/p>\n

Money in a Trump account generally can’t be withdrawn before the beneficiary turns 18. After that, “it turns into a traditional IRA,” said Ben Henry-Moreland, a certified financial planner with advisor platform Kitces.com.<\/p>\n

Because the final version adheres to IRA rules, savers would pay a 10% tax penalty<\/a>\u00a0on withdrawals before age 59\u00bd.<\/p>\n

In earlier versions of both the House and Senate bill, withdrawals could begin at age 18, at which point account holders would have been able to tap the funds for education expenses or\u00a0college alternative programs, the down payment on a first home or as capital to start a small business.<\/p>\n

“The IRA distribution rules requiring owners to wait until they reach age 59\u00bd to make penalty-free withdrawals would presumably still be in effect,” according to Henry-Moreland’s analysis of the legislation<\/a>.<\/p>\n

More from Personal Finance:<\/strong>
Trump’s ‘big beautiful bill’ slashes CFPB funding
78% say Trump’s tariffs will make it harder to deal with debt
Tax changes under Trump’s ‘big beautiful bill’ \u2014 in one chart<\/p>\n

There are ways to avoid the IRA early withdrawal penalty\u00a0for those under 59\u00bd, including if the funds are used to pay for qualifying higher-education expenses or first-time home purchases, as well as\u00a0for emergency expenses, among certain other exceptions<\/a>.<\/p>\n

However, since Trump accounts include a mix of after-tax contributions, initial seed money and investment income, distributions are still partially taxable. That means there are fewer tax planning opportunities compared with traditional and Roth IRAs, where there’s either a tax break on contributions or on withdrawals. Trump accounts have neither.<\/p>\n

“It seems like this is a good idea, complicated with unfavorable tax characteristics,” said Zach Teutsch, a managing partner at Values Added Financial in Washington, D.C.<\/p>\n

For example, “in a Roth account, you don’t have to pay tax on the income or the gains, and that just seems better,” he said.<\/p>\n

Experts say that additional details on the tax treatment of distributions will need further clarification from the Treasury Department or Internal Revenue Service.<\/p>\n<\/div>\n

<\/a>‘A retirement account for children’<\/h2>\n
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“This is really a retirement account for children,” Henry-Moreland said.\u00a0“It’s a way to put money in an account at a young age that gets saved but doesn’t have the earned income requirement that a traditional or Roth IRA would have.”<\/p>\n

But because Trump accounts are also restricted to stock funds, that means that savers won’t be able to benefit from rebalancing with less risky fixed-income options, such as bonds or cash.<\/p>\n

After age 18, the “eligible investment” rules may no longer apply and the beneficiary can invest the funds in any way allowed within an IRA, according to Henry-Moreland.<\/p>\n<\/div>\n

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Republican lawmakers have said Trump accounts will introduce more Americans to\u00a0wealth-building opportunities, particularly by investing in the stock market.<\/p>\n

Sen. Ted Cruz, R-Texas, who spearheaded the effort,\u00a0said\u00a0in a May “Squawk Box” interview that the accounts give children “the miracle of the compound growth, the ability to accumulate wealth, which is transformational.”<\/p>\n<\/div>\n

<\/a>‘A nice big check’<\/h2>\n
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A $1,000 initial deposit boosts the attractiveness of these accounts, too.<\/p>\n

Although some states, including Connecticut\u00a0and Colorado, already offer a type of “baby bonds” program for parents, most tax professionals agree that the biggest benefit of Trump accounts is the seed money for children born from Jan. 1, 2025, through Dec. 31, 2028.<\/p>\n

“There’s going to be a nice big check coming into the account,” said Evan Morgan, a certified public accountant and tax principal at Kaufman Rossin, in Fort Lauderdale, Florida.<\/p>\n

Just as advisors recommend deferring enough into a\u00a0401(k) plan to benefit from your employer’s full\u00a0401(k) matching contribution, there is no reason to pass this up.<\/p>\n

“If the government is giving you free money, you should take it,” said Teutsch.<\/p>\n<\/div>\n

<\/a>An alternative to a Trump account<\/h2>\n
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Otherwise, most\u00a0experts say\u00a0a\u00a0529 college savings plan\u00a0is a better alternative for families because of the higher contribution limits and tax advantages.\u00a0<\/p>\n

This year, individuals can gift up to $19,000 to a 529, or up to $38,000 if you’re married and file taxes jointly, per child without those contributions counting toward your lifetime gift tax exemption.<\/p>\n

Generally, 529 plans offer age-based portfolios, which start off with more equity exposure early on in a child’s life and then become more conservative as college nears. By the time high school graduation is around the corner, families likely have very little invested in stocks and more in investments like bonds and cash.\u00a0That can help blunt their losses.<\/p>\n

“At least in a 529 plan you have more flexibility on what to invest in,” Morgan said.<\/p>\n<\/div>\n

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Although there are limitations on what 529 funds can be used for beyond higher-education costs, restrictions have loosened in recent years to include continuing education classes,\u00a0apprenticeship programs\u00a0and\u00a0student loan payments. Withdrawals from 529s for nonqualified expenses can be subject to tax and a 10% penalty.<\/p>\n

Also, as of 2024, families can roll over unused\u00a0529\u00a0funds to the account beneficiary’s\u00a0Roth IRA without triggering income taxes or penalties, so long as they meet certain requirements.<\/p>\n

“<\/strong>If you were looking at this compared to a 529, I would almost pick a 529 every time,” <\/strong>Henry-Moreland said.<\/p>\n<\/div>\n

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In some cases, wealthier families could benefit from fully funding a 529 plan and then putting additional funds in a Trump account, as a way to get a jump start on retirement savings without having to satisfy the earned income component of a traditional IRA or Roth, according to Teutsch.<\/p>\n

However, “most Americans don’t even put one dollar into 529 plans, let alone maxing them out,” he said.<\/p>\n

Subscribe to CNBC on YouTube.<\/strong><\/em><\/a><\/p>\n<\/div>\n<\/div>\n

Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

President\u00a0Donald Trump’s massive\u00a0tax and spending package includes a new child\u00a0savings account with a one-time deposit of $1,000 from the federal government for newborns. The premise is simple: So-called “Trump accounts,” a type of tax-advantaged savings account, will be available to all children who are U.S. citizens starting in July 2026.\u00a0 Beyond that, the rules get<\/p>\n","protected":false},"author":1,"featured_media":18280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[196],"tags":[328,6210,242,856,7380,476,548,563],"class_list":{"0":"post-18279","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-finance-news","8":"tag-account","9":"tag-beautiful","10":"tag-big","11":"tag-bill","12":"tag-childrens","13":"tag-complicated","14":"tag-rules","15":"tag-trump"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/18279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18279"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/18279\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/18280"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}