What is a 530A “Trump account”?
530A plans, also referred to as “Trump accounts” or “TAs,” are essentially tax-advantaged IRAs for children. An authorized individual can open a 530A plan on behalf of a minor beneficiary by filing a Form 4547 or by visiting trumpaccounts.gov. Contributions to TAs can begin on July 4, 2026.
Initially, a total of $5,000 across all contribution types (described below) can be contributed to a TA per year. This cap will be indexed to inflation starting in 2028.
TA plans have a “growth period,” which includes the years before the beneficiary turns 18. Note that withdrawals are not permitted during the growth period. For example, the growth period for a child who turns 18 in August of 2030 ends on December 31, 2029.
Who is eligible for a TA?
TAs can be opened by an authorized individual on behalf of a beneficiary who has a Social Security number and has not yet turned 18 by the end of the calendar year in which the account is opened.
How do you contribute to a TA?
Contributions can be made in one of three ways: direct contributions, employer contributions, and qualified general contributions. The max contribution from these sources cannot, in aggregate, exceed $5,000.
Direct contributions can be made by anyone – parent, grandparent, aunt, uncle, etc. These are non-deductible contributions, meaning they increase the basis of the account.
Employer contributions can be made by an employer to TAs which benefit employees or dependents of employees. Employer contributions are capped at $2,500 per year, which counts against the overall $5,000 cap, which would limit direct contributions. Unlike direct contributions, employer contributions are excluded from federal taxable income, although treatment for state and local taxes may vary from state-to-state.
Qualified general contributions (“QGCs”) are those made by a charitable organization or governmental entities. These is no annual dollar limit to these contributions, nor are they included in federal taxable income (thought again, state and local tax treatment may vary). QGC contributions are subject to a number of requirements which spell out the “qualified class” of TA beneficiaries eligible for a given QGC.
When is the deadline to contribute to a TA?
Unlike IRA or HSA contributions, which have a deadline of April 15 the following year, TA contributions must be made by December 31 of each year.
What investment types can be held in a TA?
Mutual funds or ETFs that track a U.S. equity index are eligible. TAs are not permitted to hold sector-specific index funds, inverse funds, leveraged funds, or funds that include bonds or foreign equities.
Note that these restrictions only apply during the growth period. Once past the age of 18, any investment allowed in a traditional IRA will be permissible in a TA.
What are the benefits of a TA?
Aside from serving as yet another tax-advantaged retirement account, TAs offer a specific “free money” benefit for any U.S. citizen born between January 1, 2025 and December 31, 2028. Specifically, a $1,000 “pilot contribution” from the U.S. government. This does not count against the direct contribution cap of $5,000 for that year. TA account holders may also be eligible for certain qualified general contributions (“QGCs”). Most notably, the Dell Foundation will contribute an additional $250 to TAs benefiting kids ages 10 and under who live in zip codes with a median income under $150k.
What happens after the beneficiary of a TA reaches age 18?
There are four main options for a TA once the beneficiary reaches their 18th year.
- First, the beneficiary could choose to “cash it out” by distributing the money and paying applicable taxes. Most standard IRA rules apply in this case: a 10% penalty (with some exceptions) applies to distributions before age 59.5, and growth is taxed as ordinary income.
- Second, the beneficiary could elect to roll over the TA to a traditional IRA at any time after the expiration of the growth period.
- Third, the beneficiary could choose to keep the account as a TA. It should be noted that it is unclear to what extent this option will be available, as it is unclear to what extent custodians may require traditional IRA rollovers upon the expiration of the growth period.
- Fourth, the TA may be converted to a Roth IRA. This can be done at any time after the growth period ends; however, if the beneficiary is claimed as a dependent, kiddie tax rules apply, so it might make sense to wait until the beneficiary is filing their own taxes (presumably at a lower tax rate) before executing the Roth Conversion.
Why a TA-to-Roth-Conversion Strategy is attractive
Parents with the means to help their children financially often seek out tax-efficient ways to do so. For education savings, this typically means funding a 529 or Coverdell ESA. To give kids a head start on retirement savings, parents often help their children open a Roth IRA as soon as they earn income. TAs allow parents to start tax-sheltered savings ~15 years earlier. And as most investors know, time is a key ingredient in the power of compounding interest. Imagine the boost you can give your child’s retirement savings if you saved $5,000 a year from the year of their birth until age 18. At an average return of 7%, they’d have ~$220,000 in their TA. Then, each year through their mid-20s (at a reasonably low top tax bracket), they convert 20-25% of their TA to Roth. Their parents could even help pay the tax on the conversions, which would likely fall below the annual gift tax exemption and serve as a further pre-death transfer of wealth.
It’s important to be transparent with your child about the master plan for this account and to earn their buy-in, because the second part of this strategy (converting it to Roth) relies on their cooperation. At age 18, it’s their money, and ultimately their decision about whether to follow through on your intended strategy or to cash it in to throw a truly epic party – even after paying a small fortune in taxes and penalties : )
