Trump Accounts- Distributions in the Growth Period

Quick-Take: During its growth period the funds held in a Trump Account are not supposed to be accessible, with only a couple of exceptions to this general rule.

Background: The One Big Beautiful Bill Act (OB3) gave us Trump Accounts to promote savings for and on behalf of minors. [IRC 530A.] Trump Accounts become effective on July 4, 2026. However, access to a Trump Account prior to the child attaining age 18 is severely restricted, with the OB3’s stated goal to encourage the permit funds to grow in a tax deferred environment to promote long-term growth for the beneficiary. That said, there are a couple of exceptions that will permit the funds held in a Trump Account to be distributed before the child is age 18. [Notice 2025-68.]

Distributions from a Trump Account: Prior to the Trump Account (the Account) beneficiary attaining the age 18 only a couple of distributions will be permitted under OB3, but not really to or for the Account beneficiary. They include:

1. Death: Distributions on the death of the Account’s beneficiary are required. In fact, the Account’s assets are deemed to be distributed on the beneficiary’s death. The Account balance, less any basis in the Account, will be included in the gross income of the person who acquires the deceased beneficiary’s interest in the Account.
2. ABLE Account Rollover: Only in the year that the Account beneficiary is age 17 can the Account assets be rolled over to an ABLE account established for that same beneficiary. This rollover must be of the entire Account balance. This rollover must be by a trustee-to-trustee transfer.
3. Trump Account Rollover: A qualified rollover to another Trump Account is permitted, again only by a trustee-to-trustee transfer, and only for the same beneficiary. This rollover will not be treated as a distribution to the beneficiary. It is the only rollover permitted, other than the ABLE account distribution just covered. As previously reported, if a rollover to another Trump Account occurs, the original Account must be closed within a reasonable period, and the receiving trustee must report the transfer/rollover to Treasury within 30 days of the transfer. If dividends are issued after the transfer is made to the new Account, the original trustee must promptly forward the dividends to the new Account trustee.
4. Excess Contributions: As prior missives have indicated, there are several different sources of possible contributions to an Account, so that it is possible that there might be excess contributions made to the Account in a single year. If that limited amount is exceeded, the excess amount, plus earnings on that excess amount, must be distributed. The account trustee can hold the excess, for only a short time, in a general account before it must follow the formal correction procedure described in the Regulations.

Prohibited Transactions: While an Account is treated much like an IRA after the beneficiary attains the age 18, there is a risk that some of the rules that normally apply to IRAs might inadvertently be applied to the Account during its growth period. Some of those customary IRA distribution rules that do not apply to a Trump Account during its growth period include:

• No early withdrawals are permitted for education expenses, medical expenses, or first-time home purchases.
• No hardship distributions are permitted.
• No partial rollovers are permitted.
• No distribution made directly to the beneficiary or to any other person unless that distribution is specifically listed in the Regulations as authorized.

Conclusion: Obviously, contributions to a Trump Account could be locked-up for a long time.  Accordingly,  if more flexibility is desired for contributions, perhaps an IRC 529 account might be a better option, or a Minor’s Trust under IRC 2503(c) to which an annual exclusion amount gift can be made. Time will tell if they become as popular as the President after whom they are named.

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