IRS offers safe harbor for Trump accounts

The Internal Revenue Service and the Treasury Department issued guidance Monday on the new Trump accounts introduced by the One Big Beautiful Bill Act, providing a safe harbor for gift tax reporting requirements, while the American Institute of CPAs recommended families educate themselves before contributing to the accounts, which go live on July 4.

The IRS and the Treasury published Revenue Procedure 2026-25, which provides a safe harbor for individual donors who make contributions to Trump accounts and satisfy certain specified conditions. If the conditions are satisfied, contributions to Trump accounts will be treated as completed gifts that are not future interests in property and to which the annual per-donee gift tax exclusion applies. As a result, taxpayers within the scope of the revenue procedure won't be required to file gift tax returns reporting such contributions. providing a gift tax reporting safe harbor for certain contributions to Trump accounts created under the Working Families Tax Cuts. 

"By granting this relief, the IRS has responded to concerns raised by taxpayers who planned to make contributions to a Trump account but worried such donations would trigger the gift tax reporting rules," said IRS CEO Frank Bisignano in a statement. "The relief granted will reduce the potential burden placed on friends and family who want to put money into a Trump account."

(Read more: "Trump accounts: A major advisory opportunity.")

Trump accounts provide investment accounts for children to help families build resources. The account is for a child who has not turned age 18 before the end of the calendar year in which the election is made and has a valid Social Security number. It features a pilot program contribution of $1,000 for children born between Jan. 1, 2025, and Dec. 31, 2028, who are U.S. citizens with a valid Social Security number.  Some children may qualify for extra contributions private-sector programs, such as that established by Dell Computer's Michael Dell and his wife.

Unlike a traditional savings account, the funds are invested in low-cost stock market index funds, allowing for potential long-term growth, the AICPA noted.

The AICPA is encouraging families to educate themselves about the new accounts, also known as Section 530A accounts, so they can make informed investment choices for their children's future.

"Education should always come before contribution," said Cary Sinnett, director of personal financial planning at the AICPA, in a statement Friday. "These accounts, like many investment vehicles, are complex, so understanding how they work is essential in order to best use them and decide whether they should act as sole investments or be combined with other helpful savings plans like traditional savings accounts or 529 accounts."

Converting the funds in a Trump account into a Roth IRA after the child turns 18 could trigger certain taxes, the AICPA cautioned. Once a child's unearned income (which would include income from a Roth conversion) exceeds the current threshold of $2,700, taxes could apply based on the parents' marginal income tax rate, rather than the child's, and may apply in certain cases for children between the ages of 18 and 24 if they are still a dependent on their parents' tax return.

Parents or legal guardians open and manage the account, maintaining control until the child turns 18. Parents or guardians can start the process to open an account by visiting TrumpAccounts.gov before July 4, 2026, so they're ready to receive contributions and any eligible government deposit. They first need to fill out Form 4547 to make the election to set up the account. Then, an activation email will be sent to officially set up the account. Contributors will need identification for themselves and the child, including Social Security numbers. There can be one account for each eligible child.

The funds in a Trump account are generally supposed to go toward a child's future goals such as higher education, buying a first home or starting a business, and do not allow withdrawals before age 18 in most cases. The funds grow tax-deferred and, starting in the year the child turns 18, the account begins to function similarly to a traditional IRA. Withdrawals may be subject to tax and penalties, depending on how the funds are used.

Compared to a 529 college savings plan, Trump accounts have a broader use for future goals while a 529 plan is designed to be used for education expenses. Trump account funds grow tax-deferred and withdrawals will be taxed. In contrast, a 529 plan's funds grow tax-free and withdrawals are tax-free for qualified education costs.