Trump Accounts

As part of the recently enacted “One Big, Beautiful Bill Act” (OBBBA), Congress introduced a new type of child-focused savings vehicle called a “Trump Account” designed to help families invest in their children’s financial futures. Below are facts advisors and investors need to know as they discuss and consider Trump Accounts. We are beginning to see regulations roll out and will send additional information as we receive them.

A government-sponsored savings vehicle modeled as a variation of Individual Retirement Accounts (IRAs) under Section 408(a) of the Internal Revenue Code.

The Trump Accounts must be established through Treasury and their initial custodian, which has not been publicly announced yet. Guardians will be able to track the accounts online and see information on an interactive app the Treasury Department is planning to release with the launch in July.

530A is another name for Trump Accounts and is referring to the section of OBBBA that established the program. Some experts are beginning to use it when talking about Trump Accounts to align them more closely to other names, such as 401(k)s and 529s, etc.

To be eligible for a Trump Account, the child must:

• Be a U.S. citizen
• Have a Social Security number
• Under the age of 18
• A child for whom no prior Trump Account pilot program election has been made and processed

The election to open an account can be made by an “authorized individual” or the Treasury Secretary. The ordering framework from highest to lowest priority for who can make the election is a legal guardian, a parent, an adult sibling, or a grandparent of the beneficiary. Under the rules, the individual electing to open the account on behalf of a beneficiary must represent that there is no person with higher priority available to make the election.

If an election was made by an individual who was not an authorized individual, the Treasury Secretary “is deemed to have made the election to open the Trump Account.” Treasury will not auto enroll qualified children because it would violate disclosure of taxpayer information.

If the authorized individual of an open Trump Account needs to be replaced, the proposed rules specify that applicable state and federal law or the account agreement will outline next steps. The authorized individual has authority to make investment choices, as well as request to rollover the Trump Account to another brokerage or private bank or request a transfer for a qualified ABLE rollover contribution.

A child welfare agency of a state that is the legal guardian of an eligible child with a social security number may elect to open an initial Trump Account for that child. The IRS is working with each state to provide guidance and ensure agencies have the necessary information to successfully complete this process.

To be eligible for the pilot program $1,000 contribution from the U.S. Treasury, the child must be born between January 1, 2025, and December 31, 2028. Form 4547 includes an option for an individual to request the $1,000 pilot contribution.

The pilot program election must be filed by a parent or guardian with a qualifying child for the year the election is made. Treasury noted that expecting parents may want to make an election and could be able to do so before the tax year that the child is born.

When the pilot program election for the contribution is made, the child will be treated as making a $1,000 payment against a federal income tax liability, resulting in a $1,000 overpayment, which will then be refunded as a pilot program contribution to the child’s Trump Account.

Since overpayment amounts can be offset by taxes owed, but the statute requires a full $1,000 payment to a child’s Trump Account, the pilot program election is made for the child’s “special taxable year” rather than the calendar year.

No $1,000 refund will be paid except as a contribution to the child’s Trump Account. If a pilot program election is made for a child without a Trump Account, the child will not receive the $1,000 refund from Treasury.

Funds must be invested in U.S. equity index funds that track the stock market and managers cannot charge more than 0.10% in annual fees.

The maximum annual contribution will be $5,000 and indexed to inflation beginning in 2028. Contributions will generally be made with after-tax dollars. Treasury is currently working on guidance on whether the contribution will count against the gift tax limit.

Parents’ employers can contribute but are capped at $2,500 per employee, pre-tax. Treasury is working with the major payroll companies on how to execute the program for employers who want to offer it.

Contributions from governments and charities do not count towards the $5,000 total, which will be distributed by the Treasury Department.

In June, Treasury released an initiative providing flexibility for states to deposit federal survivor benefits into Trump Accounts of foster children. These contributions count towards the annual contribution limit of $5,000 per account.

Children born before Jan. 1, 2025 and under 18 are still eligible but won’t qualify for the $1,000 incentive. Parents can still invest up to $2,500 pretax for those kids, and they may benefit from the Dells’ donation, giving $250 to children 10 and under in zip codes where the median income is less than $150,000, the Dalio’s donation to children in zip codes with the same income restriction in Connecticut, or new philanthropic contributions.

Trump Accounts do not permit any distributions until the beneficiary reaches age 18, making them more akin to a “starter IRA” for children, without the requirement of earned income. It can only be used for specific purposes, such as paying tuition, starting a business, unreimbursed medical expenses or making a down payment on a home. At age 18, the account becomes a traditional IRA.

The exceptions to the no-distribution rule include:

• Qualified Rollover Contributions: The entire balance can be transferred at any time to another Trump Account for the same beneficiary.
• ABLE Account Rollovers: If the child is eligible for an ABLE account, the full balance of a Trump Account may be rolled over in the calendar year the child turns 17 and does not count towards the annual contribution limit for ABLE Accounts.

The accounts must be established through the Treasury Department and their designated financial agent, but parents and guardians will be able to transfer the accounts to a private bank or brokerage. Treasury is planning to release guidance on rollover capabilities shortly after the launch of the program.

Contributions cannot be made before July 2026, but parents of eligible kids will be able to sign up at any time by filling out Form 4547 from the IRS. No early contributions will be accepted. As of May 28, parents and legal guardians who already signed their children up through Form 4547 are receiving emails with instructions to complete the setup of the account. Activation emails will be sent out in phases between May 28 and July 4.

Treasury will only be sending communication by email from no-reply@TrumpAccounts.Treasury.gov and will not contact parents or guardians through phone or text message. If there is a need to reach customer support, Treasury instructs families to utilize the secure in-app contact portal or through online callback request.

On June 18, the Department of Labor issued a technical release stating that Trump Account contribution plans generally will not constitute “employee pension benefit plans” and therefore ERISA will not apply. Employer contributions to Trump Accounts also will not generate Title I coverage only during the growth period (January 1 of the calendar year in which the account beneficiary turns 18). For periods beyond the growth period, employer involvement with a Trump Account and contributions should be limited in accordance with IRA payroll safe harbor conditions.

On June 18, FINRA filed a proposed rule change with the SEC to amend FINRA Rule 3210, Accounts at Other Broker-Dealers and Financial Institutions, to except Trump Accounts from the requirements of the rule. LPL worked with SIFMA to achieve this relief through letters to FINRA.

Trump Accounts offer tax deferred growth on earnings and provide tax free withdrawals when distributions are qualified. Contributions may include after tax family contributions, pre tax employer contributions, and a one time $1,000 federal contribution for eligible children born between 2025 and 2028. Withdrawals prior to age 59½ may result in a 10% IRS penalty tax, in addition to current income tax, and may be restricted until the child reaches age 18. Annual contribution limits and other restrictions apply. Some Trump Account rules and regulations are still forthcoming from the U.S. Treasury and IRS. Clients should consult with a qualified tax advisor or financial professional before making any decisions.

This material was prepared by LPL Financial, LLC. Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and brokerdealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

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