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Building Generational Wealth: A Complete Guide to Trump Accounts for Arizona Families
One of the most significant developments arising from the Working Families Tax Cuts Act—often referred to as the One Big Beautiful Bill Act (OBBBA)—is the creation of Trump Accounts. For families here in Gilbert and across Arizona, this introduces a powerful new mechanism to establish tax-advantaged savings for children under the age of 18.
Furthermore, for children born between January 1, 2025, and December 31, 2028, there is a distinct opportunity to participate in a government-funded pilot program that provides an initial $1,000 contribution. As we navigate the 2025 tax season, understanding how to leverage these accounts is essential for your family's long-term financial planning.
Overview of Trump Accounts
Think of Trump Accounts as innovative savings vehicles that function similarly to Individual Retirement Accounts (IRAs), but strictly designed to build wealth from the moment a child is born. For children born from 2025 through 2028, these accounts come with the option to receive a one-time $1,000 seed contribution from the federal government.
Beyond the government seed money, the structure allows for additional contributions of up to $5,000 annually. This limit is adjusted for inflation and remains in effect until the year before the child turns 18. To ensure steady growth, the funds are invested exclusively in broad, low-cost stock market index funds, maximizing the potential for compound growth over the child's minority.
Eligibility and Contributions
The barrier to entry is intentionally low: any child under 18 with a valid Social Security number is eligible for a Trump Account. The account is managed by a parent or guardian until the child reaches adulthood. These accounts are designed to be inclusive, allowing funds to flow in from a wide variety of sources.
1. Eligibility to Contribute:
Who can contribute: Funds can come from virtually anyone invested in the child's future, including parents, guardians, grandparents, extended family, friends, the children themselves, and even employers. The standard annual cap starts at $5,000 per child, subject to future inflation adjustments.
Tax Deductibility: Generally, individual contributions are not tax-deductible. However, there is a specific exception for business owners and employers (see below).
Employer Benefits: For our small business clients, this is a key provision. Employers can contribute up to $2,500 annually toward a child’s $5,000 cap. The business is allowed a tax deduction for this contribution, and importantly, it is not treated as taxable income to the employee/parent.
Safeguards and Monitoring: Because contributions can come from multiple sources (e.g., a grandmother in Phoenix and an employer in Gilbert), avoiding the $5,000 annual cap requires diligence. A centralized record-keeping system is being established to monitor contributions in real-time. Contributors will likely be required or encouraged to register planned contributions in advance so the system can flag potential overages. Automated alerts will notify account holders when they are approaching the $5,000 threshold to prevent unsolicited over-contributions. Clear communication among family members regarding who is contributing what will be vital to maintaining the tax-advantaged status of the account.
2. Qualified Class Contributions:
In addition to private individuals, qualifying charitable organizations and government entities (such as states, tribes, and localities) are eligible to contribute. However, these entities cannot pick and choose individual children arbitrarily; they must specify a "qualified class" of beneficiaries.
This means contributions must be directed toward a defined group, such as all children born in a specific year or residing within a specific geographic area. This framework allows charities to support the foundational financial development of large groups of eligible children simultaneously.
Example: Michael and Susan Dell, through the Michael & Susan Dell Foundation, are contributing $6.25 billion to seed Trump Accounts with $250 for children who are 10 or under who were born before Jan. 1, 2025. The pledged funds will cover 25 million children age 10 and under in ZIP codes with a median income of $150,000 or less.
The $1,000 Government Seed Contribution
The federal government is providing a one-time $1,000 contribution to eligible Trump Accounts. This "seed money" is designed to give newborns a financial head start through long-term market exposure. However, this government benefit applies only to a specific cohort:
Birth Date Range: The child must be born on or after January 1, 2025, and before January 1, 2029.
Citizenship: The child must be a U.S. citizen with a valid Social Security number.
Account Election: A parent or guardian must actively elect to open a Trump Account on the child's behalf.
One-Time Deposit: This is a singular, initial deposit of $1,000. It is not recurring.
Exempt from Limits: The government's $1,000 contribution does not count toward the $5,000 annual private contribution limit.
Tax Treatment: While this seed amount grows tax-deferred, it is considered pre-tax money. Along with its investment earnings, it will be taxed as ordinary income when withdrawn after age 18.
Children born outside this four-year window (e.g., before 2025) are still eligible to have a Trump Account and receive employer or charitable contributions, but they will not receive the $1,000 federal seed grant.
Investment Strategy
To protect the principal and ensure transparency, Trump Accounts are subject to strict investment mandates. Funds must be invested in broad U.S. equity index funds that charge minimal fees and do not utilize leverage. This restriction is designed to simplify the process for families while capitalizing on the historical growth potential of the U.S. economy.
Tax Implications
Understanding the tax nuance is critical for proper planning. In structure, these accounts are a hybrid: contributions are generally non-deductible (like a Roth IRA), but earnings grow tax-deferred until withdrawal (like a Traditional IRA). Once the child reaches adulthood, standard withdrawal rules apply.
Distributions Before Age 18: Generally, distributions are not permitted until the beneficiary turns 18. This lock-in period ensures funds are preserved for adulthood. In the unfortunate event that a child beneficiary passes away, funds can be transferred to the child's estate or a designated survivor/beneficiary. We recommend establishing clear directives to ensure such transfers are handled according to your intentions.
Distributions After Age 18: When the beneficiary turns 18, distributions are treated in two parts:
• After-tax contributions: Principal contributed by parents or relatives can be withdrawn tax-free, as taxes were already paid on these funds.
• Pre-tax amounts: Investment earnings, the $1,000 government seed, and deductible employer contributions are taxed as ordinary income upon withdrawal.
• Penalty: A 10% early withdrawal penalty applies to the taxable portion of distributions taken before age 59½, unless an exception applies.
• Exceptions to the Penalty: The 10% penalty may be waived (though income tax still applies) for "qualified expenses" after age 18, including:
Higher Education: Tuition, books, and fees.
First-Time Home Purchase: Up to $10,000 for a down payment.
Birth or Adoption: Up to $5,000 for related expenses.
Disability: Expenses related to the beneficiary’s disability.
Other: Specific scenarios involving disaster recovery or terminal illness.
Account Management and Transfers
To open a Trump Account, guardians must use IRS Form 4547, Trump Account Election(s). While an online application tool at trumpaccounts.gov is expected by mid-2026, it is not yet available. Therefore, Form 4547 should be filed with your 2025 tax return (the one we are preparing now). Note that accounts cannot begin receiving contributions until July 4, 2026.
Initially, accounts are held with the Treasury’s designated agent, but they can subsequently be transferred to a preferred brokerage. This allows you to integrate the Trump Account into your broader family financial portfolio at the institution of your choice.
IMPORTANT If you have children under 18, we must ensure Form 4547 is filed with your 2025 tax return to elect these accounts. The form accommodates two children per page, and multiple forms can be filed. It requires the parent's SSN and contact info, as well as the child's SSN, DOB, and address. |
If you reside in Gilbert or the surrounding East Valley area and need assistance filing Form 4547 or planning for these contributions, please contact Martinez & Shanken PLLC.
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