Newborns can look forward to the promised Trump accounts in the new year, but if parents, grandparents, friends or relatives plan to contribute, they can look forward to a tax headache, experts said.
Trump accounts are savings accounts to encourage children and families to save and build wealth for the many expenses of adulthood. Starting in July, the government will seed the accounts with $1,000 for all children born between 2025 and 2028 with a Social Security number, thanks to the tax and spending package passed last summer. Parents and others may contribute up to $5,000 a year, with employers allowed to contribute half of that cap, into the accounts until the child turns 18.
But since individual contributions don’t qualify for the gift tax annual exclusion, the donor must file a gift tax return, or Form 709, for each contribution whether it’s the $25 minimum or the $5,000 maximum, experts said. That may sound like a small inconvenience, until Americans discover Form 709 isn’t generally available on do-it-yourself tax platforms like TurboTax or Jackson Hewitt and may require an accountant, said Amber Waldman, estate and gift senior director in RSM’s Washington National Tax practice.
