Monthly Tax Update
Welcome to July. This July 4th, 2026, we are celebrating the most important milestone in our country’s history; the 250 years of America’s independence.
This month brings more guidance for Trump accounts. This program will make a one-time $1,000 contribution to the Trump Account for each eligible child for whom an election is made, who is a U.S. citizen and born on or after January 1st, 2025 through December 31st, 2028. To open the account, you should visit trumpaccounts.gov, sign up and get the $1,000 for your child. They will appreciate it if you do it. Even without any additional contributions, the original $1,000 is projected to grow to $6,000 by age 18. Yearly contributions are allowed from July 4th, 2026.
For businesses, the program allows employers to make a deductible contribution of up to $2,500 per year for each employee, (or their dependents), and it is tax-free to the employee. This program allows a $5,000 annual limit on contributions from all sources per child. It is important to mention that contributions do not affect the beneficiary’s ability to make traditional or Roth IRA contributions if they’re eligible.
Next, information about distributions from Trump accounts: The account becomes a traditional IRA in the year the beneficiary turned 18. Distributions from the account will be treated in the same manner as any other withdrawals from a traditional IRA. Withdrawals will be subject to income tax, and early withdrawals taken before age 59½ will also be subject to a 10% penalty. A portion of each distribution will be a nontaxable return of basis, with the remainder of the distribution taxed as ordinary income.
Remember, only contributions from family and friends count as a basis. Government (initial $1,000) and employer contributions do not count as a basis for the calculation.
There are penalty exceptions at age 18: the early 10% withdrawal penalty does not apply if the distribution is used for a first-time home purchase, (up to a $10,000 lifetime cap), higher education expenses or the birth or adoption of a child (up to $5,000). There are special situations like death or disability.
If the account holder dies before age 18, the account ceases to be a Trump account, and the fair market value (less investment in the contract) is included in the beneficiary’s estate or the recipient’s income in the year of death.
A specific disability allows for a full rollover to an ABLE account at age 17, which may be relevant for disabled beneficiaries. This rollover is tax-free, provided the entire balance is transferred.
More good tax stuff next month. Remember, this is a very brief overview. It is your responsibility to discuss any tax and financial changes with your professional advisor for assistance in evaluating your situation.
For details and specific assistance in applying the general information in this article, call us at your earliest convenience or contact your tax advisor.
Provided by Pedro L. Baldeon, E.A., 321-632-5726, a member of the National Society of Tax Professionals.
