Trump accounts are now open and available for participation. If you have not already looked into this new tax benefit that is designed as a tool to save for kids’ future. Here are some tips.
Tip 1: Know the basics
- Deposit up to $5,000 per year for the benefit of a child under age 18. This will be indexed for inflation after 2027.
- The funds MUST stay in the account until January 1st of the year of the child’s 18th birthday. There are very few exceptions, but it includes disbursement of account funds in the event of the beneficiary’s (child’s) death.
- You may not place funds in basic bank accounts. An eligible investment is generally a mutual fund or exchange traded fund (ETF) that tracks an index of primarily U.S. companies.
Tip 2: Coordinate who opens the account
Each child may only have one account. There’s also published priority on who can open the account. The order of priority is:
- Legal guardians, then
- Parents, then
- Adult siblings, then
- Grandparents
Tip 3. Plan for the end
At age 18 the Trump Account ceases to exist. The funds are then to be rolled over or distributed. Distributions are treated similar to a traditional IRA.
Tip 4. Open the account now, more could be coming
The government is encouraging philanthropic donations into the account. This means if you have an account, it may grow on its own, both now and in the future. Here are examples:
- $1,000 in free money for new births. For any child born on or after January 1, 2025 through December 31, 2028, your child’s account will receive a $1,000 deposit from the federal government’s pilot program contribution to be invested and grow over time.
- Employer contributions. Regulations allow employers to contribute up to $2,500 per year to their employee’s Trump Accounts. These contributions will not add to the employee’s taxable wages. So stay tuned if your employer is looking to add this benefit.
- $250 in free money to children. 25 million children ages 10 and under will receive a $250 gift courtesy of Micheal and Susan Dell (Dell Computers) if they live in a zip code whose median income is less than $150,000.
Tip 5. REVIEW IT NOW … if you have not already done so.