Trumped Up IRAs - Dissecting 530A Bank Accounts

One of the most marketed elements of the new OBBA is the creation of 530A Bank Accounts, branded as “Trump Accounts.” It is important to note that there is a provision to allow these accounts to be open but they are not available for contributions until July 5^th, 2026. When they do come on, it’s important for parents to make the most informed decision when planning for their children’s future and putting them in the best position to meet long-term goals. These accounts provide that opportunity but there could be better options available, especially when saving for education.

What are They?

These accounts are tax deferred accounts for children (up to age 17) that grow tax free and then are currently set up to convert automatically into a traditional IRA.

Who can Open and Own One?

Any child, under the age of 18, who is a US citizen, and has a valid US Social Security number may have an account established for them by their parent/legal guardian. The child is the owner of the account.

How to can I Open One?

There are two options to open an account – 1) File Form 4547 with your tax return or 2) Apply to open one online. It is anticipated that Form 4547 can be completed and filed with your 2025 tax return. As of writing, the form is still in draft form which makes this subject to change.

How does Funding Work?

There is yearly contribution limit per account of $5,000 in total. Contributions can come from individuals, businesses, government entities, or charities (the latter two likely do not count toward the $5,000 limit). The source of funding will impact the tax implications in the future and could generate gift tax implications.

If you have a child born from January 1^st, 2025 through December 31^st, 2028 and open an account for that child, the US government is set to automatically deposit $1,000 starting July 5^th, 2026. There are also other donors who have pledged contributions to accounts opened for children that meet certain criteria, namely based on age and living in impoverished areas.

What Tax Consequences Exist?

There are no tax savings for individuals contributing to accounts. Whether you are a parent, grandparent, aunt/uncle, or just a family friend, you will not receive a tax benefit for making a contribution. Without further clarification or guidance, a contribution would trigger the need to file a gift tax return regardless of the amount contributed. This could be subject to change.

Businesses can receive a tax deduction for making contributions as a benefit for their employee and exclude it from the employee’s income, up to $2,500 per employee. Note: Individuals who run their own business and report their income on Schedule C of their personal tax return are NOT employees and would not be eligible to deduct contributions from their income.

Since the nature of these accounts is to function as a deferred tax mechanism, no annual earnings are reportable as income. When the child reaches age 18, regardless of the way the money gets into the account, it will function similarly to a traditional IRA (and can potentially be rolled into one). When the money is withdrawn, tax will be imposed on the earnings and subject to an additional 10% penalty unless the child waits until they turn 59.5, or it is used for qualified exceptions such as education or a home purchase. Further, if the contribution came from an employer, the original contribution will also be subject to tax at the time of withdrawal. The government contribution would also be subject to tax when withdrawn.

Should I Open an Account for My Child? Should I contribute?

If you had a child in 2025 or have one before the end of 2028, you should definitely open an account to receive the $1,000 deposit from the government. Further, there is no harm opening an account for a child to take advantage of further funding opportunities should they become available.

Although funding cannot begin until July 5^th, 2026, there is still too much ambiguity around the tax consequences, particularly those around triggering the potential for a gift tax return to recommend contributing to the account until further clarification and guidance is provided.

Best Savings Opportunities for Children

If you are looking at mechanisms for saving for your children’s future, contributing to a 529 account in your state of residence is still likely the best solution. Not only is there a potential state tax deduction available (each state sets their own rules), but also this provides a greater benefit when utilizing the funds for education. The added mechanism to allow up to $35,000 of unused funds to be rolled into a ROTH IRA account in the future further makes a 529 a better savings vehicle.

High earners, who have already substantially contributed to a 529 fund, may benefit from utilizing a 530A account instead of operating a traditional brokerage account in their child’s name. Once a child’s unearned income exceeds $2,700, the parents would pay tax at their tax rate on their children’s earnings above that threshold. Therefore, deferring tax (and likely paying at a much lower rate) by contributing to a 530A account would be a financially beneficial strategy. Before contributing or allowing your employer to contribute, you should consult both your financial and tax advisor to ensure you are making the best decision for your child’s future.

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