Parents could get a $2,500 tax break for funding Trump Accounts under new Treasury rules
Parents may soon have a new way to get a tax benefit while building long-term savings for their children through Trump Accounts. Proposed rules from the U.S. Treasury Department and IRS would allow employers to let workers contribute pretax paycheck dollars directly to their children’s accounts.
The proposed rules could allow up to $2,500 a year in combined employer and employee contributions to receive favorable tax treatment. For families already considering Trump Accounts, advisers say the change could make the accounts considerably more attractive.
What are Trump Accounts?
Trump Accounts, formally known as 530A accounts, are a new type of investment account for children created by last year’s sweeping tax law. The accounts were originally known as ‘MAGA accounts’ during the legislative process before House Republicans renamed them ‘Trump Accounts’ in a last-minute change to the bill. The accounts are designed to allow money to grow tax-deferred before eventually becoming an IRA owned by the child when the beneficiary reaches age 18.
Children under 18 with a Social Security number are eligible to have an account. Parents, guardians, grandparents and other eligible contributors can generally put up to $5,000 into an account each year until the year before the child turns 18.
The accounts are required to be invested in low-cost index funds tracking the U.S. market. For now, the money is going into one fund, the State Street SPDR Portfolio S&P 500 ETF.
How the potential tax break could work
Under the proposed regulations, employees could direct pretax paycheck money into Trump Accounts for their dependent children if their employer establishes a qualifying plan.
The combined employer and employee amount receiving the special treatment could reach $2,500 a year. That represents half of the $5,000 annual contribution limit for the accounts.
The key point is that the $2,500 is a combined limit. If an employer contributes money and an employee also makes pretax contributions, both amounts count toward that $2,500 threshold.
For families with more than one child, the $2,500 limit would still apply at the employee level rather than providing a separate $2,500 pretax allowance for every child.
The proposed arrangement could provide an upfront tax benefit because the employee contribution would come from pretax pay.
For example, a household in the 24% federal income-tax bracket contributing $2,500 in pretax money could save roughly $500 in federal income taxes, according to tax experts.
The exact savings would depend on a household’s circumstances, including its tax bracket and the amount contributed. But the basic idea is straightforward: The family could reduce taxable income while simultaneously putting money into a long-term investment account for a child.
The biggest catch is the employer plan. Parents cannot simply ask their payroll department to redirect pretax money into a Trump Account unless the employer establishes a qualifying written plan.
This runs through a written employer plan. If your company doesn’t adopt one, there’s nothing to elect.
That makes employer participation one of the biggest hurdles for families hoping to use the new tax treatment.
Employers do not necessarily have to contribute their own money. Instead, they could potentially update their benefits plans to allow employees to make qualifying pretax contributions from their paychecks.
More employers could start offering Trump Account contributions
More than 50 companies have committed to contributing to Trump Accounts for employees’ children, according to the Treasury Department. Some employers have also pledged to match contributions or provide other support.
The new guidance could encourage additional businesses to participate by giving employers a clearer framework for administering the benefit.
When the original law was enacted, the pretax contribution opportunity was not widely anticipated. The new rules could make Trump Accounts a more attractive benefit for both employers and employees.
Employers had been waiting for greater clarity on the rules governing contributions and administration.
The proposed rules are not final yet
Families should not treat the $2,500 pretax option as an immediately available benefit for every workplace. The Treasury and IRS proposal is still subject to public comment and a hearing before final regulations can take effect.
The proposed regulations clarifies a lot of what employers were waiting for However, the rules could still change and that it may be 2027 before some employers begin arranging for pretax paycheck contributions to Trump Accounts.
That means families interested in the strategy may need to wait for their employer and the federal government to complete the implementation process.
Trump Accounts have already attracted millions of families
Interest in the new accounts has grown rapidly since their launch. Treasury officials said roughly 7 million children had been signed up, with nearly $1.5 billion deposited into the accounts.
Children born between 2025 and 2028 are eligible for a one-time $1,000 federal contribution under the program. However, the $1,000 payment is not available to every child with a Trump Account.
The federal seed money is aimed at eligible U.S. newborns, while other children under 18 with a valid Social Security number can establish accounts without receiving the $1,000 government deposit.
Treasury has described the program as a way to make long-term investing available to families beyond those who can afford traditional wealth-building vehicles such as trusts.
“Trump Accounts level the playing field by allowing every parent to invest in their children’s future, not just wealthy families with trust funds,” a Treasury spokesperson said.
The accounts could become a retirement savings strategy
The potential tax break is particularly notable because of what can happen to the money later.
Once the child reaches age 18, the Trump Account becomes an IRA owned by the child. Financial planners have suggested that the account could then potentially be converted to a Roth IRA.
A Roth conversion generally creates an income-tax bill because the amount converted is treated as taxable income. However, young adults may be in relatively low tax brackets during their late teens and early 20s, potentially making those years an attractive period for a conversion.
The strategy is not automatically tax-free. Families also need to consider rules such as the kiddie tax and the possibility of spreading conversions over multiple years to manage the tax burden.
The pretax contribution could create a “discount Roth conversion”. The proposed payroll treatment could strengthen the Roth conversion strategy because it combines an upfront tax benefit with the possibility of paying taxes later when the child is in a lower tax bracket.
The Roth-conversion strategy has long been viewed as one of the most attractive ways to use Trump Accounts, aside from the $1,000 federal contribution. The new guidance could make that strategy even more appealing.
The approach can effectively function as a “discount Roth conversion,” allowing a family to receive a tax benefit while a parent is in a higher tax bracket and potentially pay taxes on the conversion later when the child is in a lower tax bracket.
In practical terms, families could potentially deduct contributions at the highest applicable household tax rate and pay the conversion tax at a lower rate later.
What parents should watch for next
The proposed rules could eventually give families another reason to consider Trump Accounts, but several pieces still need to fall into place.
Parents will need to determine whether their employer establishes a qualifying plan and whether payroll deductions become available. They will also need to understand how much of the $2,500 combined limit is being used by employer contributions.
Meanwhile, the Treasury and IRS must complete the regulatory process before the proposed rules become final. Families should therefore distinguish between the existing Trump Account rules and the proposed pretax contribution provisions.
If the rules are finalized and employers begin offering the benefit, parents could have a new way to combine current tax savings with long-term investing for their children.
Treasury Secretary Scott Bessent said the goal is to make that wealth-building opportunity easier to access.
“Trump Accounts are giving American families a new way to build wealth from day one,” Bessent said.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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