In US tax bill, babies to get $1,000 bonus in ‘Trump Accounts': Check eligibility criteria and other details

Time of India

23-05-2025

US House Republicans made a last-minute change to the $1,000-per-baby
MAGA Accounts
in their sweeping tax bill: Calling them "
Trump Accounts
" instead. Last week, the US government proposed a wealth creation programme for American children born during President Donald Trump's second term in office. The draft law wants the funds to be added to a "money account for growth and advancement" or "MAGA accounts". In simple terms, $1,000 (Rs 85,529) will now get deposited into "Trump accounts".
Under the proposal, "MAGA accounts" can later be used for education expenses or credentials, the down payment on a first home or as capital to start a small business. The final version of the bill that House Republicans passed Thursday could still face pushback in the Senate.
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How Trump Accounts work?
The Trump Account offers a tax advantage for those looking to get a head start on saving. Earnings grow tax-deferred, and qualified withdrawals are taxed at the more favorable long-term capital gains rate.
'This isn't significantly different from the tax treatment of a standard brokerage account,' said Sam Taube, lead investing writer at NerdWallet.
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There are other similar savings options available. Custodial brokerage accounts — commonly referred to as UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) accounts — enable parents to transfer assets like cash, stocks, bonds, and mutual funds to a minor. However, investment income from these accounts, such as dividends and interest, may be subject to the 'kiddie tax,' which applies the parents' tax rate.
Another alternative is the 529 plan. With a 529 account, earnings grow tax-advantaged, and withdrawals are entirely tax-free when used for qualified education expenses, including tuition, fees, books, and room and board.
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Who are eligible for Trump accounts?
Children born in the United States between January 1, 2025, and January 1, 2029, will be eligible to receive funds through a new government initiative. The money will be invested in financial markets on their behalf, and they will be able to access it when they reach adulthood. The funds can be used for specific purposes such as purchasing a home or paying for college, according to CBS News.
According to reports, both the child and their parents must have Social Security numbers to be automatically enrolled in the program. These accounts will be established and funded by the US Treasury. In addition to contributions from parents, third parties will also be allowed to contribute up to $5,000 per year. The federal government will contribute an initial $1,000 to each eligible child's account.
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When can you withdraw?
At age 18: Children can withdraw up to 50% of the account balance.
Between ages 25 and 30: They can access the full balance, but only for approved uses.
After age 30: The funds can be used for any purpose.
Tax Implications
Some aspects of the program have raised concerns among tax experts. Contributions must be made with post-tax income, and investment gains will be taxed upon withdrawal. According to The New York Times, this structure makes the account resemble a standard investment account rather than a tax-advantaged one.
Investment gains will be subject to the long-term capital gains tax rate. However, if funds are withdrawn for unapproved uses, they will be taxed as regular income, and a 10% penalty may also apply.