\n Trump Accounts, a new federal savings and investment vehicle for children, went live on July 4.\n <\/p>\n
\n To date, more than 6 million Trump Accounts have been opened for children under age 18, according to the Treasury Department. Of those, 1.4 million will receive the much-touted $1,000 federal pilot contribution for newborns.\n <\/p>\n
\n But the total number of opened accounts is still just a fraction of the tens of millions of children under age 18 who may be eligible to have one.\n <\/p>\n
\n For all the attention that Trump Accounts have received in recent months \u2013 especially the federal seed money and pledges of money by companies and philanthropists \u2013 there\u2019s a lot of fine print to know if you\u2019re planning to open an account or have already done so.\n <\/p>\n
\n So \u2026 we\u2019ve updated our one-stop-shop FAQ to address your most salient questions from the basics to the nitty gritty.\n <\/p>\n
\n They are IRA-style investment accounts for eligible children. They are like traditional IRAs in that money in the accounts will grow tax deferred. But the rules for Trump Accounts differ during the so-called \u201cgrowth period\u201d \u2013 which encompasses the first 18 years of a child\u2019s life.\n <\/p>\n
\n The account belongs to the child, but the parent, legal guardian or other authorized adult who opened it will serve as custodian until the child is 18.\n <\/p>\n
\n Contributions from individuals must be made with after-tax money.\n <\/p>\n
\n Withdrawals, which generally may not be made until the year the child turns 18,* will be taxed as ordinary income at the child\u2019s tax rate \u2013 minus the portion attributable to after-tax contributions made over the years, according to the Congressional Research Service.\n <\/p>\n
What are the eligibility rules for kids and adults?<\/p>\n
\n Only children who are US citizens and have a valid Social Security number may have a Trump Account. And no child may have more than one.\n <\/p>\n
\n To qualify for the one-time federal pilot contribution, the child must be born between January 1, 2025 and December 31, 2028.\n <\/p>\n
\n The account must be opened by an \u201cauthorized individual\u201d on behalf of the child (also known as the \u201cbeneficiary\u201d). If the account opener is applying for the $1,000 seed money, then that individual \u201cmust be able to claim the child as a dependent for purposes of the child tax credit,\u201d per CRS. If the child is not eligible for the $1,000 federal pilot contribution, then that individual may be a parent, legal guardian, adult sibling or grandparent.\n <\/p>\n
\n In terms of timing, a child must be under age 18 at the end of the year in which an account is opened for them, per the IRS.\n <\/p>\n
\n To open an account<\/a> fill out and submit Form 4547<\/a>. This is the same form on which you will elect to get the $1,000 pilot contribution for eligible babies.\n <\/p>\n \n Beyond the federal government\u2019s one-time contribution, several parties may contribute to a child\u2019s account. But the rules and limitations differ for each group.\n <\/p>\n \n Family and friends: Parents, grandparents and other individuals may make contributions. But they will not get a deduction for their contributions.\n <\/p>\n \n Employers: They may make pre-tax contributions to the account of an employee\u2019s child. That money will be tax-free to the employee. The employer\u2019s contribution may not exceed $2,500 a year per employee, not per child, said enrolled agent David Mellem. That annual limit will be adjusted for cost of living after 2027, per the IRS.\n <\/p>\n \n States, qualified nonprofits organizations and philanthropists: Their contributions must be made to \u201cmembers of a qualified class\u201d \u2013 that could mean, for example, all children of a certain age, or living in households below an income threshold.\n <\/p>\n \n Some business leaders \u2013 notably Michael Dell<\/a> and Ray Dalio<\/a> \u2013 have pledged through their foundations to make one-time $250 seed contributions<\/a> to the accounts of children from middle- to lower-income households.\n <\/p>\n \n To date at least 84 outside entities<\/a> \u2013 employers, foundations and states \u2013 have committed to contribute to Trump Accounts, according to a list compiled by Americans for Tax Reform.\n <\/p>\n \n Contribution limits: Family, \ufefffriends and employer contributions combined may not exceed $5,000 a year for a single account. That limit will be adjusted for cost of living starting in 2027. Contributions from governments and nonprofits will not count toward the limit.\n <\/p>\n \n By law, contributions to Trump Accounts must be invested in low-cost, broadly diversified US stock index funds or exchange-traded funds. Their expense ratio must be 0.10% or less \u2013 so for every $1,000 in an account the annual fee can\u2019t exceed $1 a year.\n <\/p>\n \n Ahead of the July 4 launch, the US Treasury announced that the default investment for all accounts will be the State Street SPDR Portfolio S&P 500 ETF (SPYM), which tracks the performance of the S&P 500. It has an expense ratio of 0.02%.\n <\/p>\n \n Treasury also noted that \u201cin the coming months,\u201d parents and guardians will have a choice<\/a> of four other funds into which they may allocate contributions. Those funds are the iShares Core S&P 500 ETF (IVV); Vanguard Total Stock Market ETF (VTI); State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM) and iShares Core S&P Total US Stock Market ETF (ITOT).\n <\/p>\n \n Trump Accounts<\/a> will be housed at Robinhood, the commission-free trading and investing platform.\n <\/p>\n \n Parents and their kids may keep track of the investments by using an app created by Robinhood and the Bank of New York<\/a>, both of which were selected by Treasury to manage Trump Accounts in their initial phase.\n <\/p>\n \n It depends on how much is contributed to the account every year and how well the index or exchange-traded fund in a child\u2019s account performs.\n <\/p>\n \n Trump Accounts essentially become traditional IRAs when a child turns 18.\n <\/p>\n \n As such, money withdrawn from the account before the child reaches age 59-1\/2 may be subject both to income taxes and a 10% early withdrawal tax.\n <\/p>\n \n But the 10% penalty won\u2019t apply if the money is used for qualified expenses<\/a>, including:\n <\/p>\n Higher education costs<\/p>\n Purchase of a first-time home (up to $10,000)<\/p>\n Birth or adoption costs (up to $5,000 per child)<\/p>\n Emergency expense (up to $1,000 a year)<\/p>\n Some medical expenses<\/p>\n \n Different contributions will be subject to different tax rules.\n <\/p>\n \n Contributions from individuals (parents, relatives and friends) are not tax-deductible. Instead, they are made with after-tax dollars.\n <\/p>\n \n Their after-tax contributions will grow tax-deferred until a withdrawal is made, which can\u2019t happen before the year the child turns 18.\n <\/p>\n \n Those withdrawals \u2013 minus the portion attributed to individuals\u2019 after-tax contributions \u2013 will be taxed like ordinary income at the child\u2019s tax rate. Put another way, only the investment gains made on those individuals\u2019 contributions will be taxable to the child upon withdrawal.\n <\/p>\n \n By contrast, contributions made by governments, nonprofits and employers will be made with pre-tax money. They, too, will grow tax-deferred until withdrawals are made. But their entire contribution plus the gains accrued will be subject to tax when the child takes money out.\n <\/p>\n \n It depends, because each type of account has its own rules and limitations<\/a>.\n <\/p>\n \n As Robinhood notes in its materials, \u201cThe right account depends on the family\u2019s goals, tax situation and timeline.\u201d\n <\/p>\n \n For instance: What is the money going to be used for? If education, 529 plans<\/a> may be better because they let you take the money out tax-free. Or if it\u2019s going to be used for retirement, a Roth IRA<\/a> may be more advantageous because it also allows for tax-free withdrawals \u2013 and has a higher annual contribution limit.\n <\/p>\n \n Making an investment in children\u2019s future from birth is a welcome idea in many quarters.\n <\/p>\n \n And in the best circumstances \u2013 a child\u2019s family can afford to contribute money every year, the parent works for an employer offering additional contributions, the stock market does well during the account\u2019s \u201cgrowth period\u201d etc \u2013 a Trump Account may provide a much-needed source of funds for today\u2019s children to help offset the costs of college and early adulthood or grow a sizeable nest egg for their later years.\n <\/p>\n \n But many families won\u2019t be able to afford to make many \u2013 or any \u2013 contributions on top of those they qualify for from outside parties. One critique of the accounts is that they will disproportionately benefit families with means.\n <\/p>\n \n Madeline Brown, a senior policy associate at the Urban Institute, questions the utility of Trump accounts after the $1,000 pilot ends for lower-income households, since they already have low participation rates when it comes to saving for their children\u2019s future in other tax-advantaged plans like 529s or Roth IRAs.\n <\/p>\n \n \u201cAbout a third of families don\u2019t have $2,000 in emergency savings, so it\u2019s no surprise that they don\u2019t have the means to go start saving in [other plans] for their children,\u201d Brown said.\n <\/p>\n \n Another potential concern: Whether the money from a Trump Account will reduce the chances of the child or the child\u2019s family qualifying for federal benefits and if so, which ones. The answer isn\u2019t clear.\n <\/p>\n \n More guidance from federal and state lawmakers will be needed to answer questions like \u201cIf I\u2019m 18 and pull out money from my Trump Account, will that affect my ability to get a Pell Grant?\u201d or \u201cWill having money in a Trump Account affect our eligibility to receive SSI payments?\u201d said Elaine Maag, a senior fellow at the Urban Institute.\n <\/p>\n","protected":false},"excerpt":{"rendered":"Trump Accounts, a new federal savings and investment vehicle for children, went live on July 4. 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