New 'Trump Accounts' Offer $1,000 Federal Deposit for Child Savings
House GOP tax bill creates alternative to 529 college savings plans
The House Republicans have included a new savings program called 'Trump Accounts' in their proposed tax legislation, offering a $1,000 initial deposit from the federal government for eligible children. These accounts function similarly to existing savings vehicles but with specific tax advantages, allowing earnings to grow tax-deferred while qualified withdrawals would be taxed at the long-term capital gains rate. The accounts represent a significant new federal financial initiative named after the current president.
Trump Accounts differ from existing options like custodial brokerage accounts (UTMAs/UGMAs) by potentially avoiding the 'kiddie tax' that parents currently face on investment income in those vehicles. They also present an alternative to 529 college savings plans, which have been the standard tax-advantaged education savings option for nearly three decades. While 529 plans restrict funds to educational expenses, they offer higher contribution limits and completely tax-free growth when used for qualified expenses.
KEY POINTS
- •GOP tax bill creates 'Trump Accounts'
- •$1,000 federal deposit for child savings
- •Alternative to 529 education plans
Experts note that 529 plans have evolved to become more flexible in recent years, with expanded eligible expenses including continuing education, apprenticeships, and student loan payments. Additionally, since 2024, unused 529 funds can be rolled over to Roth IRAs under certain conditions without triggering taxes or penalties. Financial advisors suggest that for families specifically saving for higher education, 529 plans may still offer superior benefits due to their tax-free growth potential.
The introduction of Trump Accounts represents a significant policy shift in how the federal government encourages family savings. While the article does not detail eligibility requirements, the program appears designed to provide an alternative savings pathway with fewer restrictions on ultimate use of funds compared to education-specific accounts. The $1,000 federal deposit also represents a direct financial benefit to families who establish these accounts for their children.