Ep 60:Trump Accounts Demystified: Opportunities and Unknowns for Global Families
Listen & Subscribe
dark+apple dark+spotify dark+youtube
Trump Accounts. You are a foreign national on a work visa in the U.S., or you're a U.S. expat outside the U.S. Can you use the Trump account?
We discuss the newly introduced Trump accounts, designed to provide financial support for children born after December 2024. We explore the account's features, including the initial government contribution, investment options, and withdrawal restrictions.
We also compare them to other investment vehicles, address potential concerns, and highlight the importance of understanding the implications for financial aid and long-term planning, especially when you are here on a non-immigrant visa.
Chapters
00:00 Introduction to Trump Accounts
02:47 Understanding the Basics of Trump Accounts
06:03 Investment Options and Restrictions
08:57 Distribution Rules and College Savings
12:13 Comparing Trump Accounts with Other Investment Options
15:07 Attractions and Concerns of Trump Accounts
18:04 Final Thoughts and Conclusion
The IM Café Finance/ Tax Roastery (Store) is Live!
Grab “The Comprehensive Checklist for Foreign Nationals on Work Visas Leaving the U.S.”
Currently on sale, to celebrate our 50th episode!
If you'd like to work with us on your finances or taxes, check out the process
-
Can You Use A Trump Account? – Visa Holder Or US Expat
Jane Mepham, CFP (00:02.072)
Trump Accounts. You're a foreign national on a work visa in the US or you're a US expat outside the US. Can you use the Trump account?
In today's conversation, we're going to answer a lot of questions about the Trump accounts, who, what, and really discuss how they fit into your overall plan. So, let's get into it.
Manasa Nadig, EA (00:32.427)
I know, but before we dive into it, dear listener, if you enjoy our conversations, please give us a five-star rating on Spotify or Apple. This allows more people like you to find us, enjoy the information we share, and learn from it. We are here every other week. All right then, let's dive into the Trump accounts.
This was included with all the other new tax changes as part of the One Big Beautiful Bill Act. The basics, I suppose, for the basics, we went to the whitehouse.gov website and that says the goal for these Trump accounts is to give the next generation a jumpstart on savings.
So we have a few questions from people who are interested or who are expecting a new baby sometime and sometime soon, let's just say, and they are looking at this account as an option for college savings. So what do you think, Jane? Should we start there?
What’s A Trump Account?
Jane Mepham, CFP (01:56.716)
Yeah, I think that's actually is a really good place and maybe let's, let’s literally go into the basics. Let's talk about what they are, who can open them. Right. So this Trump account is an investment account. So the question is, who can get this account?
According to the OOBBA Act, it can be open for any American child born after December 2024. So technically any child born from January 1st onwards, so January 1st, 2025, but it goes all the way up to 2028. Okay. And that is key.
Now, when you open these Trump accounts, the treasury is going to seed that with, with $1,000. So you open it, they put in $1,000, and that's it. But in terms of growing this
account, what are you allowed to do, or what can be done with it? As of now, you can't even open it yet, but the maximum contribution to this account is 5k.
And I do want to point out that this 5K is non-deductible. So, this is somewhat similar, and I think that's kind of what Manasa and I've been saying to a non-deductible IRA account.
You contribute your money, you don't pay taxes on that. The account grows tax-free or tax-deferred because at some point, you're going to have to pay taxes. So the one thing we're taking away from this, again, there's still a lot of unknowns, is that you probably want to keep using Form 8606.
So anytime you contribute, you want to make sure you track basis because you're opening the account with after-tax money. Okay, next. The contributions are only allowed if the child is under 18, and I hate to say alive.
Jane Mepham, CFP (04:15.214)
So, once they get to 19, they cannot, or you cannot, contribute to this account anymore. The 5K is another incentive, I think, that they're trying to get folks to really put money into this account: 2500 of that money can come from your employer, and it's going to be excluded from your income tax.
Once the accounts go live, the employer can offer this as a benefit and let you or others directly contribute up to $2,500 to the account, and it won't be considered part of your income. Okay, now the next question is, what can you do with this account? Do you want to look at that?
Manasa Nadig, EA (05:04.482)
Definitely, Jane. But just to kind of go back and clarify that one thing about the $2,500 and the $5,000 contribution, which I'm anticipating that people will get a question about that. So what we know so far is $5,000 can be contributed to this account. But if $2,500 of that is coming from your employer, then the 2500 from the employer is considered so that it can be excluded from your income. Am I right in understanding that?
Jane Mepham, CFP (05:41.647)
Yes, that’s actually correct. So if the employer decides, okay, I'm going to put $2,500 and your income is $100,000, your income is not going to be 100,000 plus 2,500. It's still
considered 100,000. That's a good clarification. And then, if you want to fund the account entirely, you do the 2,500. Yeah.
Manasa Nadig, EA (06:03.786)
All right, okay, got that. So, what can you do with this money? Basically, you can invest this money into a US mutual fund or an ETF that tracks the return of a qualified index fund. The annual fee on these accounts apparently cannot exceed one basis point, or put another way, 1%. They have to be point one percent or less. And I believe that you cannot use leverage. So I let Jane explain that a little.
Jane Mepham, CFP (06:46.478)
So what this means is the account can only go into something like, let's say, VTI, the total US stock index, and it has to be US. Once the money is in this account or in this fund, you cannot use it to do what's called a margin kind of thing. You cannot use it to borrow money to invest. Think of it as just a nice, boring index fund.
We leave it alone and just let it go for the next 18 years. Does that answer the question, Manasa? Okay. Sure. Would you like to go into that or just move on? Okay.
Manasa Nadig, EA (07:20.044)
Yeah, I have thoughts about that, but it does answer my question, yes. Let's move on, let's move on. For now, I'm sure I'll get a chance to dig into it further.
Jane Mepham, CFP (07:32.431)
Okay, so as we wait for Manasa to put her thoughts together, we know that this account, you cannot take money out before the child is 18. That's when you can take distribution. So what we don't know is, let's say this child decides to go to college at age 17, because that's a question a lot of parents are asking, can we use these accounts as college savings?
As of now, or at least from what we know, you cannot take the money out before they are 18. And if you do, the way the government stops you from taking money out of accounts means, technically, you can, but what they'll probably end up doing is having penalties.
That's how they stop you from taking money out of these accounts. Think, for example, if you have a 401k and you decide to withdraw your money at age 45.
Not only do you pay taxes, but there's also usually some penalty. That's as far as we know; that's probably what they are going to do. So you don't take money out of this account. Now at 18, you can take distributions. And again, from what we can tell, this account is being treated like a non-deductible IRA. So what would happen at that point is you end up paying taxes on growth.
Because remember, the contribution was after tax, right? And that’s really going to be key. Okay, now in the sad situation, unfortunate situation of let's say the beneficiary passes away before they're 18, what we know is that this account stops being a Trump account. And by Trump account, I mean the characteristics of the account.
If there's no named beneficiary, then this account would be attached to the deceased estate, actually. So, it's similar to, let's say, what happens if you inherit again, a nondeductible IRA. But again, there's still quite a bit that's unknown, but as of now, that's what we've gathered. Okay, now let's say you're using this account to save for, for your college kids.
Jane Mepham, CFP (09:53.506)
What we don't know, once again, is how this will impact the entire FAFSA process. When it comes to getting financial aid, we do know that if you're on a work visa, this might not apply to you. What it comes down to is who is considered the account owner. For example, with your 529s, those are the parents' account.
The expected contribution from those accounts is not as high as if it's considered to be the child's account. So hopefully we'll get more clarity on that, but we're still not sure how it impacts the whole financial aid picture for college. I think that's all we know as of now, Manasa.
Difference Between The Trump Account And Others (like UTMA)
Manasa Nadig, EA (10:48.468)
Right, right. I know. And then, going back to my thoughts, I was also wondering, you know, what the difference was between these accounts with, let's say, a UTMA or a different
custodial brokerage account, or maybe even a custodial Roth IRA, really, other than the thousand dollars in free government money to seed it. So I guess it'll be interesting to see what happens.
Jane Mepham, CFP (11:24.48)
Yeah. So, so, but actually I may have, I may be able to say something about that account. So we know this account is being open in the child's name. We know, let's say a custodial Roth can only be open if the child has earned income, right?
Manasa Nadig, EA (11:30.039)
Yeah.
Manasa Nadig, EA (11:33.439)
Right.
Jane Mepham, CFP (11:43.95)
Basically, and really, think that's all the retirement accounts the child can open. You could do a traditional, but you really don't want to do that because of the tax issue. I think the main thing is the child does not have to do anything to get these $1,000 into the account. And then like the UTMA and we have a whole episode where we talked about UTMA and UGMA accounts is.
They are custodial accounts, which means they are considered your account. And at 18, the child takes full ownership, and they can do anything with this account. We're still not sure what you'll be able to do, aside from having to wait until you're 18 to withdraw the money.
So, what I think we are saying is this is the information that we have as of today. And as more information becomes available.
We'll come back and probably do another episode, or, yeah, update the episode. So yeah, I'll let you talk about the next bit.
US Expats And Foreign Nationals On Work Visa
Manasa Nadig, EA (12:52.074)
No, that's good, because we'll be going into a little more depth on all of this right now. But before that, addressing our listeners in particular, the people who are US citizens but who live outside the US or are green card holders and who live either outside the US or in the US, and of course, non-immigrant visa holders.
Now, with non-immigrant visa holders, we know there's something on the back burner called the Birthright Citizenship Act. And as of today, when we're talking, it's still up in the air of what we know is that the courts have not agreed to let that go through.
So what that means is everything is still status quo. So if your child is born in the US, they are still considered a US citizen. So if they're children born to non-immigrant visa holders, children born to US expats outside the US, that is, if you are a US citizen and outside the US, your child is still eligible for these Trump accounts. So if you open the account as soon as they're born, you have that $1,000 seed money from the US government available to you.
And just right now, while we were shifting through all of this different information that we have on these accounts on the White House's website and a few other CE classes that Jane and I have taken, there are a few, what we like to call, attractions and concerns about this account. So to start off with attractions, because Jane is feeling very positive about this.
Attractions Of The Trump Account
Let's go with that for us today.
Jane Mepham, CFP (14:52.614)
Yeah, so the attraction for this account is the $1,000 free money. I mean, really, I can't see any downsides to taking the money. So, free money, $1,000, take it. That's what I'm going to say. The next attraction is once the accounts are open and your employer is willing to fund the account.
Jane Mepham, CFP (15:22.574)
That's another $2,500 in free money, right? So, take it. So really, even if you don't end up putting your own money in, you could end up with, um, what, let's see, $3,500 every year into this account without doing anything. What we don't know is how long the employer can keep doing this. Obviously, those are all details, but to me, that's something quite attractive. I also like the fact that you can have an account for the child, literally, right? Because any other accounts I can think of, let's say, like the Roth, which is really attractive as we know, you cannot do that until the child has earned income. But with this, all the child needs to do is to be born. That's it.
Manasa Nadig, EA (16:15.491)
And the parent has to open the account.
Jane Mepham, CFP (16:19.63)
Yes, of course, the parent has to open the account, but that's the main criteria. Child is born, boom, a thousand or $3,500. You know what? I’m going to let you talk about the concerns with the account.
Concerns With The Trump Account
Manasa Nadig, EA (16:37.077)
All right. I have a few concerns here, honestly. First of all, there's a lot of unknowns. When you compare these accounts with, let's say, what we like to call mature investment options, which, in my sense of maturity, means we know about how these work. We know what they are. And there's a lot of laws, guidelines, and regulations around it.
529 plans, Roth IRAs and all of that. Compared to that, this one, we don't know much yet. So, lot of unknowns.
Also, what do we know about adding beneficiaries? We don't have any guidelines about that yet. So, we do know what would happen if there was no beneficiary, but how do we add a beneficiary? Does this stay in the parent's name? Those are concerns for me.
And then the most significant concern right now, considering that we are addressing our episode to people who are here on non-immigrant work visas is what happens to these accounts if you leave the country? That would be a biggie. Of course, this is a pilot program. And as far as we know right now, it's not going to be around, or rather, it will be around only till 2028.
and then we don't know what will happen to it. Another concern for me. Well, I no longer have college-going students or children in my family, but what would happen to the FAFSA? Would FAFSA consider this to be a part of the calculation, and how will it be used by them?
That's a biggie also. And realistically, I read this somewhere and I think that we need to really check into this is the ability to open the account until July 2026, which is a year from the enactment of the OBBBA itself. So would somebody be able to go realistically and open these accounts even if their child was born after the December 24 cutoff? So those are my concerns, Jane. Do you want to add something?
Jane Mepham, CFP (19:03.15)
I mean, and those are honestly genuine concerns. But I'm going to go back to one of the main things that this sounds like free money. So, I think the approach we're taking is to give you as much information as we have. As of now, I would probably say that once you know you can open them, go ahead and open them. But
Manasa Nadig, EA (19:10.283)
Yes.
Jane Mepham, CFP (19:30.784)
At that point, we'll go out and see what other information is available, but at least we'll keep you up to date on these accounts. So I don't think I have anything else to add to these Trump accounts. We'll see. Anything else or do you want to conclude?
Manasa Nadig, EA (19:47.884)
No, I think this is a good place to kind of call it. if you are going to have a baby soon, good luck. We wish you lots of luck. And please talk to your financial planner and find out what all the exciting things are that you can do for the baby. And thank you so much for listening. We truly appreciate you being here with us and listening to our episodes, and do share and subscribe. And we have lots of goodies on our website. So do check us out at the imcafe.com T-H-E I-M-C-A-F-E dot com. Thank you. Bye.
Jane Mepham, CFP (20:34.563)
Bye.
Share this episode
The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.