Trump accounts, also known as 530A accounts, were officially launched on July 4th this year to coincide with the 250th anniversary of the United States.
The accounts are essentially tax-advantaged savings for children under age 18 with a Social Security number. Children born between 202528 will receive a one-time contribution of $1,000 in government “seed” funding. Parents, family, friends, and employers can contribute up to an additional $5,000 annually. Much like traditional Individual Retirement Accounts (IRAs), these funds grow tax-deferred and convert to Traditional IRAs at age 18. They also allow flexibility for use in higher education, first homes, or small businesses without early withdrawal penalties, which is the main benefit over the traditional IRA.
Before the creation of Trump Accounts, children could not have a retirement account without also having taxable income to go with it. Another beneficial feature is the ability to convert the account to a Roth IRA at age 18. While taxes would be due at that time, most young adults would fall into the lowest tax bracket at that time in their lives.
“A thousand dollars 18 years later could easily become $3,400-$4,000. If left for 65 years, it could easily become $100,000,” according to Samantha Reilly, CPA, owner and Lead Accountant of All Accounting Services and Taxes in St. Cloud.
While the accounts are available under the law, parents must act to open an account for their child. The process starts when a parent files an IRS Form 4547. You will then receive an initial activation email, which will come only from a no-reply@ TrumpAccounts. Treasury. gov email address. You can fill out and submit the form right in the Trump Accounts app, when you file your taxes, or through the secure IRS website called Individual Online Accounts, or IOLA.
To date, over 6 million accounts have been opened. The app and other processing information can be found at https://www.trumpaccounts.gov/.
“The true power of Trump Accounts comes from the ability to offer our kids & youth decades of compounded growth that they otherwise would have missed out on. Combine that with 529 plans, we can give our future generations a stronger financial foundation from a much younger age,” said Reilly.
Employers can contribute to Trump Accounts for their employees’ children to help support early savings and financial readiness, with up to $2,500 tax-deductible for the employers. Employers may also choose to offer employees a salary reduction program under a “cafeteria plan” so that employees can make pretax contributions to Trump Accounts for their eligible children. Nonprofit organizations and local governments can also contribute to the Trump accounts of all children in a state or a qualified geographic area.
Despite the association with the Trump name, the accounts are receiving significant bipartisan support, with widespread media coverage. Maryland Governor Wes Moore, a Democrat, cited the accounts as smart policy on national media, while the unlikely duo of U.S. Senators Cory Booker (D- New Jersey) and Ted Cruz (R-Texas) sent a joint letter to the CEOs of Fortune 1000 companies urging them to support the child investment accounts for their employees.
Financial matters often depend on individual circumstances, so individuals should seek professional financial planning advice when it comes to their retirement savings.
