Gift Taxes and Trump Accounts

A Trump Account is a new version of an Individual Retirement Account (IRA) specifically for children, one that does not require earned income for contributions.  Up to $5,000 may be contributed each year through age 17, and at age 18 the account becomes a traditional IRA, subject to traditional IRA limits on withdrawals.  As such, the account is of limited utility in meeting college education costs, it is primarily oriented toward retirement.  Contributions to such accounts have been allowed since July 4 of this year.

When Congress established Trump Accounts in the One Big, Beautiful Bill Act last year, the legislators did not give any apparent thought to the gift tax implications of contributions to these accounts.  One might naturally assume that the federal gift tax annual exclusion ($19,000 this year per done) would apply, but strictly speaking the annual exclusion is only available for a gift of a “present interest,” that is, a gift over which the done acquires immediate control.  The severe restrictions on Trump Account distributions before the beneficiary is 18 mean that the account beneficiary does not have the required control over it, which in turn implies that a gift tax return will be required for every account contribution (though no gift tax would be due, in most cases).

 The IRS has come to the rescue, after a fashion.  In Revenue Procedure 2026-25, the Service has established a “safe harbor” for letting the vast majority of taxpayers off the gift reporting hook.  If the taxpayer does not make total gifts to the Trump Account beneficiaries in excess of the gift tax annual exclusion, the contributions will be treated as gifts of present interests, and no gift tax return will be required.

 Example. Uncle Donald makes $5,000 contributions in 2026 to three Trump Accounts, one each for Huey, Louie, and Dewey.  If he makes no other gifts to the boys, no gift tax return will be needed.  But if Uncle Donald gives Huey an additional $15,000 cash gift in the same year, that would bring his total for Huey to $20,000, which is over this year’s exclusion amount.  In that event, gift tax returns would be required for the gifts to all three of the nephews.

 Why was the IRS so accommodating to taxpayers?  Practicalities ruled the day.  The IRS processes about 300,000 gift tax returns per year.  As of July 1, more than 6 million Trump Accounts had been established.  The IRS does not have the manpower to process another 6 million gift tax returns, especially considered than none of them will be paying a tax, and almost none of those making Trump Account contributions will ever pay a federal gift or estate tax.

 The better solution would be for Congress simply to make clear that Trump Account contributions qualify for the annual exclusion from gift taxes.

(July 2026)

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