With the newest little one tucked safely under her paw, Zoey is wondering what many parents and grandparents are asking:
Should I open a Trump Account for the kids?
Trump Accounts are a new type of IRA created for eligible children under age 18 with a valid Social Security number. For children who are U.S. citizens and born between January 1, 2025 and December 31, 2028, the federal pilot program provides a one-time $1,000 contribution.
Families and others can also contribute. Generally, those contributions are limited to $5,000 per year, and the money is invested in qualifying funds that track a U.S. stock index. The account is designed for the long term, with withdrawals generally restricted until the year the child turns 18.
A Few Tax Details to Know
- Tax-deferred growth: Investments inside the account can grow without annual taxation while the money remains in the account.
- Contributions are generally after-tax: Family contributions generally create basis in the account rather than providing an upfront income-tax deduction.
- Withdrawals are restricted before age 18: Generally, the child cannot take distributions during the account’s growth period, with limited exceptions.
- After 18, traditional IRA rules generally apply: That means taxable amounts withdrawn from the account are generally subject to ordinary income tax.
- Watch the 10% additional tax: A taxable withdrawal before age 59½ may also be subject to the 10% additional early-distribution tax, unless an IRS exception applies.
- There are exceptions: Certain IRA withdrawals may avoid the additional 10% tax—for example, qualifying higher-education expenses and up to $10,000 for a qualified first-time home purchase.
So, is opening one automatically the right answer? Maybe. A Trump Account may give a child a valuable head start, but the tax rules and restrictions matter. It’s worth looking at how the account fits with your family’s other savings options before deciding. Zoey appears to still be thinking it over.
Want to talk about Trump Accounts and whether one makes sense for the newest little one in your life? Let’s have a conversation Click here to book a phone call