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The One Big Beautiful Bill Act (OBBBA) creates a new type of tax-advantaged account for eligible children. Section\u00a0530A accounts, also known as \u201cTrump accounts,\u201d can be established for children under age\u00a018 who have a Social Security Number (SSN). Contributions to properly established accounts can begin on July\u00a04,\u00a02026.<\/p>\n
The IRS has released guidance that sheds more light on the accounts and a temporary pilot program that will contribute $1,000 tax-free for certain children. Here\u2019s what you need to\u00a0know.<\/p>\n
A different kind of IRA \u2014 initially<\/strong><\/p>\n A Trump account is established for the exclusive benefit of an eligible child, who\u2019s the account owner. While the account is essentially a type of IRA, it\u2019s subject to special rules that don\u2019t apply to other IRAs. Most of these rules are in effect only during the period that ends before January\u00a01 of the calendar year in which the child reaches age\u00a018 \u2014 what\u2019s referred to as the \u201cgrowth\u00a0period.\u201d<\/p>\n During the growth period:<\/p>\n After the child turns 18, traditional IRA rules kick in, including those regarding contributions, distributions (as well as the 10% early withdrawal penalty), required minimum distributions (RMDs), taxation and Roth IRA conversions.<\/p>\n Account election<\/strong><\/p>\n Unlike regular IRAs, Trump accounts must be created initially by the U.S. Treasury Secretary. To have an account established for your child, you must make an election, and the child must not have reached age\u00a018 before the close of the calendar year when the election is made. The child also must have an SSN before<\/em> the election is\u00a0made.<\/p>\n According to the IRS guidance, the election can be made on the forthcoming Form\u00a04547, Trump Account Election(s), or through an online tool that isn\u2019t yet available. You can file the form with your 2025 tax return. An account can be established at the same time you elect to receive a pilot program contribution (see below) or any time before January\u00a01 of the year the child turns 18. Only one account can be opened per\u00a0child.<\/p>\n After the election is made, the Treasury Department will send you the necessary information to activate the account. The IRS says this information will be available in May\u00a02026.<\/p>\n Pilot program participation<\/strong><\/p>\n A one-time $1,000 government-provided contribution is available for children born after December\u00a031, 2024, and before January\u00a01, 2029, who are U.S. citizens with SSNs. The pilot program election can be made on Form\u00a04547 or through the online\u00a0tool.<\/p>\n The Treasury Department will contribute to accounts eligible for the pilot program as soon as practicable after the election is made. Note that no contributions will be made before July\u00a04,\u00a02026.<\/p>\n Contributions to the account<\/strong><\/p>\n Trump accounts can receive several types of contributions during the growth period besides contributions from parents, other loved ones or the children themselves. For example, an account can accept a \u201cqualified general contribution\u201d funded by states and political subdivisions, the federal government, Indian tribal governments, or certain nonprofits. These contributions, which will funnel through the Treasury Department, can be made only to \u201cqualified classes,\u201d such as those residing in certain areas and born in specific years. Michael and Susan Dell\u2019s recently announced donation totaling $6.25\u00a0billion is an example of this type of contribution.<\/p>\n Employers can contribute up to $2,500 per year (adjusted for inflation after 2027) to the accounts of employees or their dependents, with contributions generally excluded from the employee\u2019s taxable income. The limit applies on a per-employee basis. Trump accounts can also accept qualified rollover contributions.<\/p>\n Pilot program contributions, qualified general contributions and qualified rollover contributions don\u2019t count toward the annual contribution limit. However, employer contributions do count toward the limit. Notably, contributions must be made within the calendar year to count toward that year\u2019s limit \u2014 the contribution deadline doesn\u2019t extend to April\u00a015 of the following year as it does for traditional and Roth\u00a0IRAs.<\/p>\n Education savings alternatives <\/strong><\/p>\n Trump accounts might not be the best option when it comes to building savings for your child\u2019s education. Both 529\u00a0plans and Coverdell Education Savings Accounts (ESAs) also allow tax-deferred growth, but withdrawals for qualified education expenses are tax-free. On the other hand, Trump account distributions are taxed as ordinary income to the extent that they aren\u2019t attributable to after-tax contributions.<\/p>\n There are other 529\u00a0plan advantages: Contributions may qualify for state tax deductions. And they aren\u2019t subject to an annual limit, provided they don\u2019t exceed the amount needed to cover the beneficiary\u2019s qualified expenses. (Note that gift tax rules might apply, depending on the contribution amount.)<\/p>\n Moreover, up to $35,000 of funds left in a 529\u00a0plan account held for at least 15\u00a0years in one beneficiary\u2019s name can be rolled over into the beneficiary\u2019s Roth\u00a0IRA without incurring the normal 10% penalty for nonqualified withdrawals or resulting in taxable income. Roth\u00a0IRAs don\u2019t have RMDs, and withdrawals are tax-free. Certain restrictions on 529\u00a0plan rollovers apply, but this rollover option could be a significant advantage over Trump accounts, which eventually become traditional\u00a0IRAs.<\/p>\n Investment options for 529\u00a0plans are limited to those permitted by the plan administrator, typically mutual funds and ETFs. But they may offer greater choice than Trump accounts. ESAs allow a wider range of investments, typically everything a broker offers. However, the maximum contribution to an ESA is limited to $2,000 per beneficiary per year, and contributors are subject to income-based contribution limits.<\/p>\n Stay tuned<\/strong><\/p>\n The IRS expects to issue additional guidance on Trump accounts. We\u2019ll keep you up to date on important developments in this and other OBBBA-related\u00a0areas.<\/p>\n \u00a9 2025 <\/em><\/p>\n <\/body> The One Big Beautiful Bill Act (OBBBA) creates a new type of tax-advantaged account for eligible children. Section\u00a0530A accounts, also known as \u201cTrump accounts,\u201d can be established for children under age\u00a018 who have a Social Security Number (SSN). Contributions to properly established accounts can begin on July\u00a04,\u00a02026. The IRS has released guidance that sheds more […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,59,10],"tags":[8,11,12],"class_list":["post-17483","post","type-post","status-publish","format-standard","hentry","category-articles","category-etra","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17483","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17483"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17483\/revisions"}],"predecessor-version":[{"id":17484,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17483\/revisions\/17484"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17483"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17483"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17483"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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