Trump Accounts Now Available to 60M More Kids: What Parents Should Know
Millions of American children now have Trump Accounts waiting to be claimed, even though their parents never signed up.
On Oct. 1, the Treasury Department announced it had automatically enrolled more than 60 million additional children. But having an account doesn't automatically mean getting the government's $1,000 contribution. And for parents considering adding their own money, there are rules worth understanding first.
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Below is everything you need to know if you are looking into getting your child a Trump Account.
Who Gets the $1K?
According to the IRS, children must be U.S. citizens born between Jan. 1, 2025 and Dec. 31, 2028, with valid Social Security numbers to qualify for the $1,000 contribution. Families must also elect the contribution using Form 4547 and claim the child's account to receive the money.
Older children won't receive the federal deposit, although they may qualify for contributions from other sources.
Michael and Susan Dell pledged $6.25 billion to provide $250 contributions to 25 million children, according to the Treasury Department. The White House said the funding would target children age 10 and under living in ZIP codes with median incomes below $150,000.
How To Claim Your Child's Account
Before the October rule change, parents generally had to sign up to establish an account. Now, most eligible children already have one waiting.
Parents can claim their child's account through the official Trump Accounts app, available for iPhones and Android devices or online at TrumpAccounts.gov.
To complete the process, parents must verify their identity and relationship to the child, review the child's information and accept the account terms.
How Much Can Families Contribute?
According to the IRS, parents, grandparents and others can contribute a combined $5,000 annually to a child's Trump Account.
A parent's employer may also contribute up to $2,500 annually to their child's Trump Account if the company offers that benefit. That money counts toward the same $5,000 limit but is excluded from the parent's taxable income.
The government's $1,000 contribution and certain qualifying charitable contributions don't count toward the $5,000 annual limit.
How Much Could the Money Grow?
Trump Accounts aren't traditional savings accounts. The money is generally invested in low-cost U.S. stock index funds, which can rise or fall with the market.
Consider a child who receives the $1,000 deposit and nothing more. Assuming a hypothetical 7% average annual return, the balance would grow to roughly $3,400 after 18 years. Actual returns could be higher or lower.
Reaching a six-figure balance by adulthood would generally require substantial additional contributions.
The money generally can't be withdrawn during childhood.
Beginning in the year the child turns 18, traditional IRA rules generally apply. The IRS explained that investment earnings and government contributions are generally taxable when withdrawn, but parents' after-tax contributions aren't taxed again.
Withdrawing taxable amounts before age 59.5 may also trigger a 10% additional tax, unless an exception applies, such as for qualified education expenses or a first-time home purchase.
Is Putting More Money Into a Trump Account Worth It?
The government's $1,000 contribution doesn't require eligible families to contribute their own money. Contributing thousands more each year is a different decision.
Bobby Adusumilli, chartered financial analyst (CFA) and adviser at SJS Investment Services, said individuals can't claim a federal income tax deduction for personal Trump Account contributions.
“If your goal is college or another nearer-term expense, a 529 plan or another account suited to that purpose may make more sense,” Adusumilli said.
Qualified education withdrawals from 529 plans are generally tax-free, per the IRS.
Andy Esser, financial adviser at Edward Jones, recommended prioritizing parents' retirement savings before contributing additional money to a child's account.
“A child has many decades to save for retirement, while parents have a shorter window to make up for missed savings opportunities,” Esser said.
Editor’s note: Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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