“Trump accounts” for children are expanding significantly
Michael and Susan Dell have contributed more than $6 billion to programs that have boosted the value of approximately 25 million accounts by $250.
Newborns may be looking forward to the promised Trump account in the new year, but it could pose a tax headache for parents, grandparents, friends and relatives planning to donate, experts say.
The Trump Account is a savings account designed to encourage children and families to save and build wealth for a variety of adult expenses. Thanks to a tax and spending package passed last summer, the government will put $1,000 into the accounts of every child born between 2025 and 2028 with a Social Security number, starting in July. Parents and others can contribute up to $5,000 a year, and employers are allowed to contribute half of that limit to the account until the child turns 18.
However, because individual gifts do not qualify for the annual gift tax deduction, donors must file a gift tax return (Form 709) for each gift, whether it’s a minimum of $25 or a maximum of $5,000, experts said. Amber Waldman, senior director of estates and gifts for Washington tax at RSM, said it may seem like a minor inconvenience until Americans learn that Form 709 is not generally available on do-it-yourself tax platforms like TurboTax or Jackson Hewitt and may require an accountant.
This is a “major tax compliance issue,” she said.
Why do I need to file Form 709?
Contributions to Mr. Trump’s account are not considered gifts with “current interest” and therefore do not qualify for the $19,000 annual gift tax deduction per person. A “current interest” gift means the recipient can access and use the gift immediately. Money in a Trump account is typically not available until the child turns 18.
Education 529 savings plans were exempted by Congress. When the 529 was created, Congress specifically stated that a gift “shall be treated as a completed gift to its beneficiary and not as a future property interest.”
Neither the IRS nor the Treasury Department can resolve this administratively, Waldman said. Congress needs to act, but so far there are no such legislative proposals.
She warned that even if you don’t owe taxes, failing to file still poses a risk. “The IRS can hold the omission against the taxpayer in an audit,” she said.
How do Americans file Form 709?
Americans can print, complete and mail Form 709 to the IRS, or file it electronically through an approved provider or company, typically using the IRS’s Modernized e-File (MeF) system.
If a taxpayer chooses to use an accountant, Waldman warned, “the declaration may cost more than the donation itself.”
Bong said this was a “gifting trap to Trump’s account.”
Does Trump’s account still have value?
Most financial advisors say, “Yes, the Trump account is still free money.”
“It’s hard not to take free money,” said Dan White, founder and CEO of Daniel A. White & Associates in Glen Mills, Pennsylvania. “If someone gives you money, don’t have your eyes like a gift horse’s mouth.”
While that may be true for the first $1,000 from the government, Americans need to weigh all their savings options when it comes to donations, experts say.
For Bong, “Trump’s account is a waste of time.”
Aside from the hassle of Form 709, he pointed out that donations are not tax deductible and withdrawals are taxed. Withdrawals made before age 59 1/2 may also be subject to a 10% penalty.
“If your child is lucky enough to have some income, it’s better to use a Roth IRA, which is tax-free,” he says. “If you’re saving for your child’s education, a 529 may be a better option because qualified distributions are tax-free and some states allow contributions to be deducted or tax deductible.” Roth IRAs are funded with after-tax funds, but withdrawals are not taxed.
Funds in the Trump account must also be invested in low-cost index funds with fees of 0.1% or less, no leverage, and primarily exposure to U.S. stocks.
The average fee for equity mutual funds was 0.4% in 2024, and the average fee for index stock ETFs was 0.14%, according to the Investment Company Institute, a nonprofit industry group.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday to Friday morning.
