To Inform:

We occasionally receive the question, “What are these Trump Accounts I’ve been hearing about?” To put it simply, Trump Accounts are an investment account available to U.S. citizens under the age of 18 which offers tax-deferred growth. An account can be opened by a child’s parent or guardian who will remain the custodian of the account until the child turns 18. Accounts opened for children born between January 1, 2025, and December 31, 2028, are eligible for a $1,000 grant or “pilot program contribution” to be deposited in their Trump Account. Currently, there is a contribution limit of $5,000 per year made with after-tax dollars.

In the year when the child turns 18, the account is converted into a traditional Individual Retirement Account (IRA). At that point, the choice is now theirs for what to do next with the account. Although no withdrawals are allowed before turning 18, a young adult who owns this account can continue to receive tax-deferred growth, convert the account to a Roth IRA or make withdrawals, keeping in mind that traditional IRA rules apply.

Some withdrawals may be considered a qualifying expense, such as paying for higher education, buying their first home, or medical expenses, which would allow the young adult to avoid tax and/or early withdrawal penalties; however, ordinary income tax would be assessed.

This type of account can give children a headstart on their retirement. Since an account can be opened at birth, your investments compound for longer, leading to more capital growth at retirement!

Consider the example below which shows how much a retirement account can grow over a lifetime depending on earnings and contributions.

Source: https://trumpaccounts.gov/

Granted this is hypothetical, but there is truth to the idea of compounding growth. Since the account could be opened in the first few years of the child’s life, contributions have the opportunity to compound for a number of years.

Corporations can also make tax deductible contributions up to $2,500 to Trump Accounts on behalf of their employees’ children.

So now that you know a little more about “these Trump Accounts you’ve been hearing about,” let us know if you have other questions about the possibilities for your children to get a headstart on retirement!

Written by Luke Kandel, Summer Intern