The $1,000 ‘Trump Accounts’ for newborns, Part 2

“Trump Accounts” are a new tax-advantaged savings vehicle for children under 18. With strict investment and contribution rules, this government-funded pilot program provides $1,000 to eligible newborns’ accounts. Here are some highlights of this program:

Investment restrictions:

• Until the child turns18, the account can only be invested in low-fee, broad-based U.S. stock index funds or ETFs that track the S&P 500 or similar indexes.

• No leverage or high-fee funds are allowed.

Distribution rules:

• No withdrawals are allowed before the year the child turns 18, except for specific rollovers or in the event of the child’s death.

• If the child dies before the age of 18, the account is included in the estate or passed on to beneficiaries, with special tax rules.

• If excess contributions are made, they must be withdrawn, and any earnings on excess are taxed at 100 percent.

Special rollovers:

• At age 17, the entire Trump Account can be rolled over tax-free to an ABLE account (for individuals with disabilities) for the same beneficiary.

• Rollovers to a Trump Account for the same child are also allowed.

Employer and charitable contributions:

• Employers can contribute up to $2,500 per year to an employee’s child’s Trump Account, tax-free to the employee.

• Charitable organizations and government entities can make “qualified general contributions” to groups of Trump Accounts (for example, all children in a state or birth year).

When will the accounts become available?

• They are expected to become available next July. Further information on this program will be forthcoming in the weeks ahead.

Barry Lisak is an IRS enrolled agent specializing in personal and small business taxes for 30 years. Any questions can be directed to him at 516-829-7283, or mrbarrytax@aol.com.