Trump Accounts: A Strategic Wealth Transfer Opportunity for Your Children
For high-net-worth individuals and families in Burlingame and across California, the landscape of estate planning and wealth transfer is constantly evolving. With the enactment of the Working Families Tax Cuts Act—often referred to as the One Big Beautiful Bill Act (OBBBA)—President Trump has introduced a new vehicle for generational wealth building: the Trump Account. This legislation creates a distinct opportunity for parents, grandparents, and guardians to establish tax-advantaged savings structures for children under 18.
For those with children born between January 1, 2025, and December 31, 2028, the program includes a specific pilot component involving a government contribution. At Sullivan & Company CPA Inc., we view this not merely as a savings account, but as a strategic component of a broader gift and estate plan designed to foster long-term financial security for the next generation.
Understanding the Structure of Trump Accounts
Conceptually, Trump Accounts function as innovative savings vehicles that blend characteristics of traditional and Roth IRAs, specifically tailored to assist families in building wealth from the moment a child is born. The primary objective is to leverage the power of compounding interest over an extended timeline.
For eligible children born during the 2025–2028 window, these accounts offer the potential for a one-time $1,000 government seed contribution. Beyond this federal grant, the structure allows for private contributions of up to $5,000 annually. This cap is indexed for inflation, allowing the contribution limit to rise over time until the year preceding the child's 18th birthday. To ensure consistent growth and mitigate risk, funds within these accounts are mandated to be invested in broad, low-cost stock market index funds.
Eligibility, Contributions, and Compliance
Accessibility is a key feature of this program. Any child under the age of 18 with a valid Social Security number is eligible to be the beneficiary of a Trump Account. The account is legally managed by a parent or guardian in a custodial capacity until the child reaches the age of majority.
1. The Contribution Ecosystem
Strategic Gifting: Contributions are not limited to parents. Grandparents, extended family, friends, and even the children themselves can contribute. This presents a unique planning opportunity for grandparents looking to move assets out of their taxable estates while directly benefiting their grandchildren. The annual aggregate limit begins at $5,000 per beneficiary.
Tax Treatment of Contributions: generally, contributions are made with after-tax dollars and are not tax-deductible for the individual donor. However, there is a notable exception for business owners.
Employer Incentives: Employers may contribute up to $2,500 annually toward a child’s $5,000 cap. Crucially, the employer receives a tax deduction for this contribution, and it is excluded from the employee’s taxable income. For family business owners, this offers a tax-efficient method to transfer wealth.
Compliance and Record-Keeping: Given the diverse sources of potential funding, maintaining the integrity of the $5,000 annual limit is paramount. A centralized, robust record-keeping system is required to monitor inflows in real-time. We advise establishing clear communication channels among all potential contributors—such as grandparents and family trusts—to register planned contributions in advance. Automated alerts should be utilized to flag approaching limits, preventing inadvertent over-funding that could trigger compliance issues. Sullivan & Company can assist in establishing these protocols to ensure your family remains compliant.
2. Qualified Class Contributions
The legislation allows qualifying charitable organizations and government entities (state, local, or tribal) to contribute to these accounts. Unlike individual donors, these entities must designate a "qualified class" of beneficiaries—for example, all children born in a specific year within a designated geographic region.
Real-World Application: A prominent example of this provision in action involves the Michael & Susan Dell Foundation. They have pledged $6.25 billion to seed Trump Accounts with $250 each for children aged 10 or younger born before Jan. 1, 2025. This initiative targets 25 million children in ZIP codes with median incomes of $150,000 or less, demonstrating the scale at which these accounts can be utilized for broad economic impact.
The $1,000 Government Seed Contribution (Pilot Program)
The federal component of this legislation is a one-time $1,000 contribution designed to provide a financial jumpstart. However, this specific benefit is restricted to a precise demographic cohort.
Strict Date Window: The child must be born on or after January 1, 2025, and before January 1, 2029.
Citizenship Requirement: The beneficiary must be a U.S. citizen with a valid Social Security number.
Affirmative Election: This is not automatic. A parent or guardian must formally elect to open the account.
Financial Impact: This $1,000 grant does not count toward the $5,000 annual private contribution limit. It is a one-time infusion of capital, not a recurring payment.
Future Taxation: It is important to note that while this seed money grows tax-deferred, the initial $1,000 and its associated earnings are considered pre-tax funds. They will be taxed as ordinary income upon withdrawal after age 18.
Clients should understand that children born outside this 2025–2028 window are still eligible for Trump Accounts and private/employer contributions, but they will not receive the federal seed capital.
Investment Parameters
To streamline management and mitigate speculative risk, the investment options within Trump Accounts are statutorily limited. Funds must be allocated to broad U.S. equity index funds that do not utilize leverage and maintain minimal fee structures. This ensures that the portfolio captures the long-term growth of the American economy without the volatility associated with individual stock picking or high-frequency trading.
Tax Implications and Distribution Rules
For our clients focused on wealth preservation, understanding the tax nuance is critical. The Trump Account operates on a hybrid model.
Pre-Age 18 Restrictions: Generally, distributions are prohibited until the beneficiary turns 18. This lock-up period ensures the assets are preserved for adulthood. In the tragic event of a beneficiary's premature death, funds may be transferred to their estate or a designated successor beneficiary. We recommend updating estate documents to reflect these directives.
Post-Age 18 Distributions: Once the beneficiary reaches adulthood, withdrawals are bifurcated for tax purposes:
• Return of Basis: After-tax contributions made by family members can be withdrawn tax-free at any time, as the tax liability was satisfied prior to contribution.
• Taxable Portion: Pre-tax amounts—specifically investment earnings, the $1,000 government seed, and any employer or charitable contributions—are taxed as ordinary income upon withdrawal.
• Penalty Considerations: A 10% early withdrawal penalty applies to the taxable portion of distributions taken before age 59½. However, significant exceptions exist that align with major life milestones.
Penalty Exceptions (Qualified Expenses): While income tax will still apply to earnings, the 10% penalty is waived for:
Higher Education: Tuition, books, and fees.
Real Estate: Up to $10,000 for a first-time home purchase.
Family Building: Up to $5,000 for qualified birth or adoption expenses.
Health and Hardship: Disability expenses, terminal illness, or disaster recovery.
Strategic Implementation: Filing and Management
Opening a Trump Account requires proactive filing. Guardians must utilize IRS Form 4547, Trump Account Election(s). Alternatively, an online application via trumpaccounts.gov is expected to launch in mid-2026.
Form 4547 can be filed alongside the taxpayer’s 2025 tax return. It is important to note that accounts cannot begin accepting contributions until July 4, 2026. While initially held by a Treasury agent, these accounts are transferable to private brokerages, offering you the flexibility to integrate them into your broader wealth management portfolio.
CRITICAL FILING REQUIREMENT If you intend to establish a Trump Account for your children, Form 4547 must be filed with your tax return. The form accommodates two children per document, but multiple forms may be filed. You must provide the parent/guardian's name, SSN, and contact info, alongside the child's name, SSN, DOB, and address. |
At Sullivan & Company CPA Inc., we specialize in simplifying complex compliance issues. If you have questions about how Trump Accounts fit into your family's estate plan or need assistance with Form 4547, please contact our office. We are here to help you secure your financial legacy with clarity and confidence.
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