Progress Report

The IRS has reported that as of March 31 more than 4 million taxpayers have signed up for tax-favored Trump Accounts [IR-2026-42].  More than 1 million are covered by elections for the $1,000 pilot program contribution from the federal government.  Form 4547 is used to create the account, available at the IRS website [https://www.irs.gov/pub/irs-pdf/f4547.pdf].

 A Trump Account is a new version of an Individual Retirement Account (IRA) specifically for kids that does not require earned income for contributions.  Up to $5,000 may be contributed each year through age 17, and at age 18 the account becomes a traditional IRA, subject to traditional IRA limits on withdrawals.  As such, the account is of limited utility in meeting college education costs, it is primarily oriented toward retirement.

Financial planners have come up with an interesting twist.  After the Trump Account becomes a traditional IRA, the beneficiary could convert it to a Roth IRA.  The conversion amount would be taxable income, but if this happens early in the beneficiary’s career, perhaps spread over several years, the income tax hit would be relatively slight.  The Roth IRA would then grow tax free until retirement, when it could provide for tax-free withdrawals free of the Required Minimum Distributions (RMDs) that apply to traditional IRAs.  According to an illustration in The Wall Street Journal, assuming a modest 7% annual growth rate and assuming that the income tax on the conversion to a Roth IRA is paid from other sources, the Trump Account will be worth just over $3 million when the beneficiary reaches age 59½.  Of course, that day is very far in the future, and the tax rules might change in the meantime.

Contributions to the Trump Accounts may begin on July 4, 2026.

(April 2026)

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