We live in times when tax law is done in fits. Congress races to write a bill. Passes it and informs the public of its beauty. And then the IRS and taxpayers are left to figure out what it means. We wrote about Trump Accounts when they came into existence and expressed skepticism while saying “Stay tuned.” Today there is more info on the screen but this writer still can’t decipher what this is all about.
We all can see the intention. We are not producing enough kids, and part of the issue is the cost of raising them. Child care costs average about $1,200 a month in the U.S. So, someone came up with the idea that to address this problem, Uncle Sam and “friends” will make a payment of $1,000 each time you have a kid. Hmmmm. Parents don’t get the money; the kid does and the theory is that by the time kid grows up, there will be a tidy nest egg to hatch, subject to tax at ordinary rates +10% unless you can wait an additional 41.5 years.
Last week the Treasury Department started to connect some dots on the Trump Account program. According to the Wall Street Journal, about 7 million Americans had signed up. So, to stimulate those numbers, Treasury is now automatically enrolling children without a parent’s knowledge or consent. But wait, while your new kid may have an account, the account won’t be funded until you …..(drum roll)….sign up. This will create a fresh 65,000,000 Trump accounts but they won’t have anything in them. And to be eligible for $1,000 contribution you have to produce a kid during President Trump’s term, ending just after 2028. Once you get fully enrolled you and your employer can put money in the account where it will grow tax free. Another spin is that generous folks can contribute to the accounts with stock holdings. Those transfers will be non-taxable to the donors. This seems to contradict the earlier premise that dollars contributed would be kept in index funds. The 2026 contribution limit is $5,000 from all sources. The $1,000 government contribution is not counted against that cap. The accounts will be managed by either BNY Mellon or Robinhood. Withdrawal rights are highly restricted until the child attains 18 at which time the account becomes a conventional IRA. None of the contributions is tax deductible. Trump Account contribution limits: What parents and families need to know
So, congratulations, your minor child now owns a non-functioning Trump Account unless you already signed on. Current balance is -0-. You might want to check around with friends, family and your employer to see if anyone wants to give your kid some money. A great option IF your mortgage, utilities, insurance, gas and car payments are current. And don’t forget the day care. You may be struggling but your child can start investing with your money, your family money or your employer’s money.
Here’s the official website; Trump Accounts – The American Dream Starts Now
And lest you forget if your zip code has a median household income of less than $150,000 Michael Dell’s foundation will pony up $250 for the account.
Easy, right? The smart move may be to wait to see how this plays out. In a day when folks are screaming about affordability this is a rushed plan for things you can do with your excess income.
News update: Your child may already have a Trump account. Here’s how to check.