One Big Beautiful Bill Act, P.L. 119-21 • Signed July 4, 2025 • Contributions Open July 4, 2026

Congress created a new tax-advantaged savings vehicle for children under the One Big Beautiful Bill Act — the "Trump Account" (IRC §530A). With contributions now open as of July 4, 2026, and new IRS guidance addressing key planning questions, there are critical facts every high-income family needs to understand before funding one — particularly those residing in high-tax states

The Basics

• Enrollment: Enrollment can be initiated by filling out IRS Form 4547 with your annual tax disclosure or directly via the web portal at trumpaccounts.gov. A similarly named site, trumpaccounts.com, is not affiliated with the government and should be avoided. Ensure to use official government channels to register and activate the account.
• $1,000 federal seed: Children born January 1, 2025–December 31, 2028 receive a one-time government deposit (IRC §6434). This does not count against the annual contribution limit.
• $5,000/year contribution cap: After-tax contributions from all sources combined; employer contributions are capped at $2,500 per year within this limit. Indexed for inflation after 2027.
• Tax-deferred growth, ordinary income on exit: Unlike a 529 plan, taxable distributions are taxed as ordinary income — not at capital gains rates. This applies even to withdrawals used for education. Contributions from family and friends can be withdrawn tax-free. However, the initial government seed, employer matches, and all accumulated capital growth are subject to ordinary income tax upon withdrawal.
• U.S. index funds only: Funds must be invested in low-cost U.S. equity index ETFs or mutual funds with expense ratios ≤0.10%. No individual stocks, sector funds, or foreign assets during the growth period.
• Converts to a traditional IRA at age 18: After-tax contributions create basis, opening a potential Roth conversion strategy in low-income years.

Gift Tax — Updated Guidance Now Provides Relief (Rev. Proc. 2026-25)

A significant concern existed at launch: contributions were technically classified as gifts of a future interest under IRC §2503(b) — because the child cannot access funds until age 18. Unlike 529 plans, which carry explicit statutory language (IRC §529(c)(2)) deeming contributions present-interest gifts, IRC §530A contained no such language. Every contribution potentially required a Form 709 and drew down the donor’s lifetime exemption. The IRS resolved this on June 29, 2026, through Revenue Procedure 2026-25, which establishes a transfer tax safe harbor treating qualifying contributions as completed present-interest gifts to which the $19,000 annual gift tax exclusion applies — with no Form 709 required.

The safe harbor applies only if all five conditions are met for the calendar year:

• The contributor is an individual;
• The only taxable gifts made during the year are cash contributions (cash, check, money order, or electronic funds transfer) to Trump Accounts;
• Total gifts to each account beneficiary — including the Trump Account contribution — do not exceed the $19,000 annual exclusion;
• No gift or GST tax liability is generated after applying the contributor’s remaining applicable exclusion amount; and
• No gift tax return is otherwise required or filed for that year for any reason — including portability elections, split-gift elections, or other taxable transfers.

Planning note for high-net-worth clients: The safe harbor is narrow. Clients already filing Form 709 for any reason — split-gift elections, portability, irrevocable trust funding, or any other taxable transfer — fall outside the safe harbor entirely. In those circumstances, Trump Account contributions must be reported as future-interest gifts on the return, and the annual exclusion will not apply. Coordination with your estate planning advisor before contributing is essential for clients with active gifting programs. Otherwise, this is a potential trap for the unwary.

High-Tax State Clients: Deferral May Not Exist at the State Level

States are not required to conform to federal tax treatment under IRC §530A. California, New York, and New Jersey — states with top marginal rates of 13.3%, 10.9%, and 10.75%, respectively — have not confirmed conformity as of this writing. Residents of non-conforming states may owe state income tax annually on earnings inside the account, eliminating the deferral benefit at the state level and materially reducing the account’s net value versus a 529 or custodial account. Do not assume the tax-deferral advantage exists at the state level without confirming your state’s position.

Bottom Line: What to Do Right Now

• File Form 4547 with your 2025 return to open the account and capture the free $1,000 federal deposit if your child qualifies. No personal contribution is required to receive the government seed. Taxpayers who submitted Form 4547 with their 2025 tax return should watch for Treasury activation instructions, which are being sent in phases before the July 4, 2026 launch. Taxpayers who did not submit Form 4547 with their return can still make the election through their IRS online account, but should expect to complete IRS account sign-in and identity-verification steps before the election and activation process can be completed.
• Contributions open July 4, 2026 — confirm safe harbor eligibility before funding. Revenue Procedure 2026-25 (June 29, 2026) treats qualifying Trump Account contributions as present-interest gifts eligible for the $19,000 annual exclusion, with no Form 709 required. The safe harbor applies only if: (1) the contributor is an individual making cash contributions only; (2) total gifts to each beneficiary, including the Trump Account contribution, do not exceed $19,000 for the year; (3) no gift or GST tax liability is triggered after applying remaining lifetime exclusion; and (4) no gift tax return is otherwise required or filed for any reason that year. If any condition is not met, contributions revert to future-interest treatment and must be reported on Form 709.
• High-net-worth clients already filing Form 709 fall outside the safe harbor. If you are making split-gift elections, portability elections, funding irrevocable trusts, or any other taxable transfers during the year, you will be filing a gift tax return — which means the safe harbor does not apply. Trump Account contributions made in that same year must be reported as future-interest gifts and the annual exclusion will not apply. Coordinate with your estate planning advisor before funding.
• For education funding, fund the 529 first. The 529 still offers higher annual contribution limits (up to $19,000 per donor under the annual exclusion, or $95,000 with the five-year front-load election per donor), tax-free qualified distributions, and state income tax deductions in many states. The Trump Account’s $5,000 annual cap and ordinary income treatment on all distributions — including education withdrawals — do not compete favorably for clients whose primary objective is education funding.
• Business owners: Explore the employer contribution structure ($2,500/year per employee or dependent, excluded from the employee’s taxable income) as a tax-efficient fringe benefit for family members employed in the business. Final IRS guidance on employer plan documentation and payroll reporting is still pending.
• State conformity remains unresolved. California, New York, and New Jersey have not confirmed conformity to IRC §530A as of this writing. Residents of non-conforming states may owe state income tax annually on account earnings, eliminating the federal deferral benefit at the state level. Confirm your state’s position before treating tax-deferral as a guaranteed benefit.

Trump Accounts represent a meaningful new planning tool, but the Rev. Proc. 2026-25 safe harbor conditions and ongoing state conformity uncertainty make them a nuanced decision for high-income families — not a simple one. Planning should be tailored to each client’s estate, income, and state tax profile. To discuss how these rules apply to your specific situation, please reach out to your Alvarez & Marsal Private Client Services tax professional.