Trump Accounts are only a few months old, but the Treasury Department is already dramatically expanding these tax-deferred investment accounts for children in two different ways. First, it is automatically enrolling millions of children under age 18, the department announced Oct. 1. Second, it is expanding how certain individuals can contribute to them -- and what can be contributed.
Parents -- and their financial advisors -- should stay abreast of the changes. Children may already have Trump accounts without anyone realizing it. And those accounts could receive shares of individual stocks that the parents never expected.
Automatic enrollment. Earlier this month, the Treasury Department said it automatically enrolled more than 60 million eligible children under the age of 18 for the accounts, which are named after President Donald Trump. That is in addition to approximately seven million children whose parents had already opened accounts on their behalf.
"This is a transformative milestone in the Trump Administration's effort to give every American child the opportunity to build generational wealth and jump-start their financial future," Treasury Secretary Scott Bessent said when announcing the changes.
Although children are now automatically enrolled, parents still need to claim their child's Trump Account. They can do so through the official Trump Account app, according to the Treasury Department, which says it created a collective master
group trust to hold automatically enrolled accounts until they are claimed.
Individual stocks. Trump Accounts launched July 4. The federal government is seeding the accounts with $1,000 for children born between Jan. 1, 2025, and Dec. 31, 2028. Parents can contribute up to $5,000 a year to a Trump Account. Some wealthy individuals, such as technology founder Michael Dell, are also offering to contribute money to Trump Accounts to help kickstart children's savings.
Under the law that set up Trump Accounts, owners can purchase only a limited selection of low-cost exchange-traded funds that track U.S. stocks, such as the State Street SPDR Portfolio S&P 500 ETF $(SPYM)$. But under new rules issued by the Treasury Department in the Federal Register, donors may donate individual stocks to Trump Accounts.
The gifts come with restrictions. Children and their parents can't refuse the individual stocks. Shares also can't be sold for a period of five years, with a few limited exceptions, such as a qualified rollover contribution to an ABLE (Achieving a Better Life Experience) account, which is for people with disabilities.
The Treasury Department and the Internal Revenue Service are seeking public comment and feedback on whether there should be additional exceptions to the five-year holding period, for example, when a child holding an individual stock in their account would create legal or ethical conflicts for a family.
The Treasury Department says in a filing in the Federal Register that the changes around stock contributions could spur additional donations from donors via charitable foundations. The department says that the IRS and the Treasury have been informed that several eligible donors who would not otherwise make cash contributions are prepared to facilitate contributions of appreciated stock. The department didn't name the eligible donors.
Donors hope that contributed stock and a five-year holding period will spur kids and parents to feel that they have a stake in the fate of the company whose shares they now own, according to the filing. They can't, however, choose individual children to receive the shares. Donations have to go to at least 5,000 individuals, grouped together based on factors such as geography. For example, a charitable foundation could contribute one share of a bank to every Trump Account in a particular ZIP code.
Trump Accounts are a type of Individual Retirement Account (IRA) and are one of several tax-advantaged savings accounts available to parents. Other options, such as 529 plans, potentially offer superior tax advantages. For example, funds withdrawn from 529 plans for qualified education expenses, such as university tuition, are not subject to taxes. Individuals can also roll over leftover 529 plan funds into a Roth IRA without paying taxes on the rollover. Withdrawals from a Roth IRA in retirement aren't subject to federal or state income tax.
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