Originally written by MFS Investment Management
Edited By Gleba and Associates for clarity and brevity
What is a Trump Account
Trump Accounts are a new savings and investment vehicle designed to help children build long-term assets while providing opportunities for education, homeownership, family formation, and other qualifying expenses. Eligible children may receive an initial government-funded contribution and can benefit from additional contributions made by family members, employers, charitable organizations, and local governments.
Opening an Account
A Trump Account is established using IRS Form 4547, available at TrumpAccounts.gov. Once the account is established, eligible beneficiaries may elect to receive a one-time government contribution of $1,000. Eligibility for this payment is limited to children born between January 1, 2025, and December 31, 2028.
Contributions
Trump Accounts allow contributions of up to $5,000 per child annually. The one-time government contribution of $1,000 does not count toward this annual limit.
Contributions may be made by individuals, employers, charitable organizations, and local governments. Notably, no earned income is required for the child to receive contributions. As a result, family members and other eligible contributors can help build the account balance regardless of the child’s employment status.
Investment Options and Growth Period
Assets held within a Trump Account may be invested in the S&P 500 or other qualified indexes. Eligible investment options must invest at least 90% of assets in domestic companies and maintain an expense ratio of 10 basis points or less.
Except in the case of qualified rollovers, funds remain invested until the beneficiary reaches age 18. This structure is intended to provide an extended growth period and encourage the long-term accumulation of assets.
Withdrawals
Withdrawals may be used for qualified purposes without penalty. Qualified uses include higher education expenses, the purchase or construction of a first home, subject to a $10,000 limit, and expenses related to the birth or adoption of a child, subject to a $5,000 limit. Certain medical expenses that qualify for a deduction are also eligible uses of account funds.
Maintaining, Conversion, or Rollover
A Trump Account does not automatically transition into a Traditional IRA. Instead, a rollover to a Traditional IRA or a conversion to a Roth IRA may be required. The account may continue to follow IRA rules while remaining a separate account type. When determining the taxable portion of withdrawals, Trump Accounts are not aggregated with other IRAs.
The only permitted early withdrawal is a full, direct rollover to an ABLE account during the year the beneficiary turns 17. The rollover must include the entire account balance and is not subject to annual ABLE contribution limits.
Tax Treatment
Trump Accounts are generally taxed in the same manner as a Traditional IRA. Pre-tax contributions and earnings are taxed as ordinary income when withdrawn. After-tax contributions may be withdrawn tax-free, although any associated earnings remain taxable.
Withdrawals before age 59 ½ may be subject to a 10% penalty. In addition, the kiddie tax may cause some unearned income, including certain withdrawals, to be taxed at the parent’s tax rate.
Summary
In summary, Trump Accounts provide a structured way to save and invest for a child’s future. They offer opportunities for government seed funding, contributions from multiple sources, tax-deferred growth, and penalty-free withdrawals for several significant life events and expenses.
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Gary is a Financial Associate at Gleba & Associates, Inc., joining our team in June 2020. After graduating from Walsh College with a Bachelor’s Degree in Finance in 2013, he began his career at Raymond James Financial Services. He then moved to the world of banking, working as a banker with Chase Private Client and then as an Assistant Vice President, Financial Advisor with PNC Investments. Gary has expertise in all aspects of financial planning including investment management, higher education planning, life insurance, and long-term care insurance needs analysis. When he gets away from the office, he loves to spend time with his wife, Lauren, and two daughters, Hadley and Harper. He enjoys woodworking, boating, summer weekends at the family cottage, spending time outdoors and traveling.
Conor is a Financial Associate at Gleba & Associates, Inc., where he started in 2018. Conor has prior experience in the financial planning industry, as well as in the insurance industry. His high level of understanding insurance and financial products helps him in assessing the needs of our clients. He holds a Bachelor of Science degree in Business Administration with a concentration in Finance from the University of Detroit Mercy. You can often find Conor playing soccer or walking with his two dogs Milo, and Ellie. He is also an avid follower of the Detroit Tigers, Detroit Red Wings and his alma mater, the University of Detroit Mercy Titans.
Lorie Heitzer is our Financial Associate at Gleba & Associates, Inc., where she has been a valuable employee for more than a decade! In her current role, Lorie assists with client reviews, implements client financial planning, and handles preparation of investment paperwork. During her time with Gleba & Associates, Lorie has earned her Series 6 (Investment Company Variable Contracts Representative), 63 (Uniform Securities Agent) and Life Insurance Licenses, allowing her to move into her current role where she assists clients in both of these areas. Lorie and her husband Bill, along with their daughters Lauren and Alexandria, and sons-in-law, Andrew & Joe, enjoy golf and make it a family event whenever possible. Her tenure at Gleba & Associates speaks volumes to her passion for the firm’s family atmosphere and her dedication to our clients and their financial and insurance needs.
Terri is the Service Manager at Gleba & Associates, Inc., Joining the team in April, 2015. In her role, she handles client service requests and underwriting. Terri’s previous experience in 401(k) Retirement Plans, Payroll and Human Resource Administration is invaluable, allowing Gleba & Associates to grow and run efficiently. This is knowledge that can also assist our small business clients as they grow their businesses. Terri enjoys spending time with family, which includes her husband, Gerry and her two children, Vincent and Genna. She loves the outdoors and camping with family in their RV. Terri looks forward to continuing the high level of customer service you have come to expect from Gleba & Associates!
Michael is the Marketing Manager at Gleba & Associates, Inc., where he began in August 2017. In his position, Michael creates and develops marketing strategies to enhance the image of Gleba & Associates, and helps maximize the Client-Advisor relationship. He is also in charge of company events, seminars, and educational workshops. Michael has a Bachelor of Applied Arts Degree in Integrative Public Relations from Central Michigan University. When he is not in the office, Michael can most likely be found playing billiards, playing poker, on the tennis court, or rooting on the Utica Unicorns baseball team. Michael stays active by going to the gym and going to the dog park with his Labrador-mix, Milton. His approachable attitude, along with experience in marketing, communications, and social media, makes him a valuable asset to the Gleba & Associates team.
Moiz is our Financial Associate at Gleba & Associates, Inc., where he began in 2013 after working for Bank of America and Thomson Reuters in various financial roles. In his position, Moiz assists in the research of financial solutions in order to meet client’s needs, conducts client reviews, provides insurance quotes, offers detailed financial plans, and delivers follow-up services to our clients. Before moving to the United States in 2004, Moiz grew up in rural India, where he was raised in a family of entrepreneurs. This allowed him to quickly learn the value of financial investment. Moiz holds a Bachelor of Commerce Degree in Accounting from Gujrat University and a B.B.A. in Management and an MBA from Walsh College of Accountancy and Business Administration, where he was elected as a member of Delta Mu Delta, the International Honor Society in Business Administration in recognition of high scholastic attainment. Moiz enjoys spending time with his wife, Tasneem, son, Taha, and family. He also loves playing tennis and rebuilding computers. His expertise in the areas of banking, mortgage and taxation helps to provide our clients with distinct portfolio advice as well as overall financial direction and growth.