Here’s How Retirees Can Take Advantage of Trump’s Big Beautiful Bill To Help Their Grandchildren
Written by
G. Brian Davis
Edited by
Rebekah Evans
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The One Big Beautiful Bill Act (OBBBA) created a new tax-deferred account for minors called “Trump Accounts.”
According to a report released by the White House’s Council of Economic Advisors, children born between 2025 to 2028 qualify for a free $1,000 seed contribution from the federal government to sweeten the deal. They must be a U.S. citizen or legal resident with a Social Security number (SSN) and have at least one parent with an SSN.
Upon turning 18, beneficiaries can withdraw funds for higher education expenses, small business startups or a down payment for a home.
But how do these accounts work and what do grandparents need to know before contributing?
Contributions and Investments
Parents, relatives and their employers can contribute up to a combined total of $5,000 per year, per child. Employers of either the parent or child can contribute up to $2,500 per year, which counts toward the $5,000 limit.
Account managers can invest in mutual funds or exchange-traded funds (ETFs) that track a qualified index such as the S&P 500. Fund fees cannot exceed 0.1% of the balance each year.
Before you get too excited, beware that you can’t deduct contributions. You pay full taxes on them now, although those contributions form the basis in the investment account and your grandchild won’t pay taxes on that basis when withdrawn.
Withdrawals: Uses, Taxes and Penalties
With few exceptions, children can’t withdraw funds until they turn 18. At that time, they can withdraw money penalty-free for:
- Higher education expenses such as college tuition
- Small business expenses
- Down payment for a first home (up to $10,000)
- Natural disaster recovery (up to $22,000)
- Expenses related to the birth or adoption of a child (up to $5,000)
“I like this better than a 529 plan because the money can be used not just for education, but also business startup, hardship and other reasons,” said Brian Safdari, CEO of College Planning Experts.
Trump Accounts otherwise follow the same rules as a traditional IRA once the beneficiary turns 18. If they withdraw distributions before age 59.5, they pay a 10% penalty.
Account holders pay regular income taxes on withdrawals, other than the basis created by contributions.
Are Trump Accounts Worth It?
While you must still pay taxes on contributions, the government’s $1,000 seed capital and the possibility of employer matching contributions could make these accounts attractive.
Michael Harris, financial planner with Emory Wealth said grandparents can use these accounts to kickstart generational wealth. “Consistent contributions of $5,000 per year, assuming an 8% annual return, would grow to roughly $200,000 over 18 years.” That’s a meaningful sum for higher education, launching a business or retirement savings that can keep compounding for the next 50 years.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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