When it comes to retirement planning, most individuals do not begin to seriously consider their options until they are well into their working years. Even fewer people think about laying the groundwork for their children’s retirement.
However, with the passage of the One Big Beautiful Bill Act (OBBBA), a new opportunity for intergenerational financial planning has emerged: the Trump Account.
H2 What Are Trump Accounts?
Trump Accounts are a newly established form of an individual retirement account (IRA), distinct from Roth IRAs, and are administered by the U.S. Treasury. These accounts are specifically designed to help children begin saving for retirement from an early age, offering the powerful advantage of decades of tax-free compound earnings until they are eligible for retirement distributions. The earlier the account is established, the greater the potential for long-term growth.
Key Features and Benefits
Some the key features of the Trump Accounts include:
- Annual Contributions: Parents, guardians, or other eligible contributors can deposit up to $5,000 per year, per child, with this limit adjusted annually for inflation. While contributions are not tax-deductible, the investment earnings within the account grow tax-free until distribution.
- Investment Options: Funds are generally invested in mutual funds and indexed ETFs, providing broad market exposure and growth potential.
- Employer Contributions: Under H.R.1, employers are permitted to contribute to Trump Accounts. These employer contributions are excluded from the employee’s taxable income, creating an additional incentive for early participation.
- Pilot Program Bonus: For children born between Jan. 1, 2025, and Dec. 31, 2028, the Treasury will make a one-time $1,000 deposit into a Trump Account upon opening. While $1,000 may not sound significant, if left untouched and invested at an estimated 7 percent annual return, it could grow to approximately $57,000 over 60 years – a powerful example of compounding in action.
Important Rules and Timing
Whe considering a Trump Account, please keep the following in mind:
- Account Opening: Trump Accounts cannot be opened, and contributions cannot begin, until the expected launch date of July 2026.
- Contribution Window: Contributions are allowed only until the beneficiary turns 18, encouraging early and consistent saving.
- Withdrawals: Distributions cannot be taken until the beneficiary reaches age 18, and early withdrawals are subject to penalties, similar to traditional IRAs.
Why Consider a Trump Account?
Opening a Trump Account for your child provides a unique opportunity to give them a significant head start on retirement savings. The combination of early contributions, tax-free growth, and potential employer and government funding can translate into substantial long-term benefits.
To discuss how Trump Accounts can fit into your family’s financial strategy, reach out your Zinner & Co. Tax Team representative.