The One Big Beautifull Bill Act includes a new investment account to help kids save for their future. As part of launching this new account, the U.S. government is funding $1,000 into the account of every citizen born between Jan 1, 2025 – Dec 31, 2028. These new investment accounts are called “Trump Accounts.”
Receiving the $1,000 Contribution
As of writing this blog, the $1,000 contributions have not began rolling out nor can you create your child’s account yet. You may need to opt in on behalf of your child once the accounts become accessible in order to receive the contribution. If you would like to be notified as we learn more information, please leave us a message along with your email address and whether or not you’re an active client, we will keep you updated.
Account Benefits
Account contributions are can be invested in U.S. equity funds like the S&P 500 and investment gains are tax-deferred until your child makes a withdrawal from the account. Employers can contribute to the account of their employee’s child without adding to the employee’s taxable income.
Taxation
When funds are withdrawn from the account, investment gains are taxed at ordinary income rates meaning that withdrawals are treated similarly to a Traditional IRA.
Limitations
Early withdrawal penalties before the account owner reaches the age of 59.5 also apply with some exceptions. When the account owner turns 18, there are some exemptions to the early withdrawal penalty when the funds are used for expenses like a new home purchase, higher education costs, and many others. The account does not offers less tax advantages than a 529 Plan for higher education expenses but offers some tax benefits across a wider range of life scenarios than just the advantages that come if your child goes to college.
Takeaways
If you have a child or grandchild born between 2025-2028, stay updated to ensure your child receives the $1,000 government contribution. Additionally, be aware of these accounts and that your employer may soon be offering to contribute to your child’s account.
When it comes to your own contributions, there might be some circumstances in which the Trump account is the best vehicle to fund your child’s future with. But depending on your goals a 529 Plan, UTMA, or even just a regular brokerage account may better match your goals for your child’s future.
