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CNBC
5 days ago
- Business
- CNBC
'Trump accounts' come with a $1,000 baby bonus. Then the rules get complicated, tax experts say
President Donald Trump's massive tax and spending package includes a new child savings account with a one-time deposit of $1,000 from the federal government for newborns. The premise is simple: So-called "Trump accounts," a type of tax-advantaged savings account, will be available to all children who are U.S. citizens starting in July 2026. Beyond that, the rules get somewhat confusing, tax experts say. Under Trump's "big beautiful bill," children born in 2025 through 2028 will also receive a $1,000 deposit each in their Trump account, funded by the Department of the Treasury. There are no income requirements. Parents and others will be able to contribute up to $5,000 a year in after-tax dollars up until the year before the beneficiary turns 18. Employers could also contribute up to $2,500 to an employee's account, which wouldn't be counted as income to the recipient. Both caps will be indexed to inflation. The balance will be invested in a low-cost fund that tracks a U.S. stock index. From a tax perspective, the accounts would function like an individual retirement account. Earnings grow tax-deferred, and qualified withdrawals are generally taxed as ordinary income. Here's where it starts to get tricky. Trump account funds may not be easily accessed for decades. Money in a Trump account generally can't be withdrawn before the beneficiary turns 18. After that, "it turns into a traditional IRA," said Ben Henry-Moreland, a certified financial planner with advisor platform Because the final version adheres to IRA rules, savers would pay a 10% tax penalty on withdrawals before age 59½. In earlier versions of both the House and Senate bill, withdrawals could begin at age 18, at which point account holders would have been able to tap the funds for education expenses or college alternative programs, the down payment on a first home or as capital to start a small business. "The IRA distribution rules requiring owners to wait until they reach age 59½ to make penalty-free withdrawals would presumably still be in effect," according to Henry-Moreland's analysis of the legislation. More from Personal Finance:Trump's 'big beautiful bill' slashes CFPB funding78% say Trump's tariffs will make it harder to deal with debtTax changes under Trump's 'big beautiful bill' — in one chart There are ways to avoid the IRA early withdrawal penalty for those under 59½, including if the funds are used to pay for qualifying higher-education expenses or first-time home purchases, as well as for emergency expenses, among certain other exceptions. However, since Trump accounts include a mix of after-tax contributions, initial seed money and investment income, distributions are still partially taxable. That means there are fewer tax planning opportunities compared with traditional and Roth IRAs, where there's either a tax break on contributions or on withdrawals. Trump accounts have neither. "It seems like this is a good idea, complicated with unfavorable tax characteristics," said Zach Teutsch, a managing partner at Values Added Financial in Washington, D.C. For example, "in a Roth account, you don't have to pay tax on the income or the gains, and that just seems better," he said. Experts say that additional details on the tax treatment of distributions will need further clarification from the Treasury Department or Internal Revenue Service. "This is really a retirement account for children," Henry-Moreland said. "It's a way to put money in an account at a young age that gets saved but doesn't have the earned income requirement that a traditional or Roth IRA would have." But because Trump accounts are also restricted to stock funds, that means that savers won't be able to benefit from rebalancing with less risky fixed-income options, such as bonds or cash. After age 18, the "eligible investment" rules may no longer apply and the beneficiary can invest the funds in any way allowed within an IRA, according to Henry-Moreland. Republican lawmakers have said Trump accounts will introduce more Americans to wealth-building opportunities, particularly by investing in the stock market. Sen. Ted Cruz, R-Texas, who spearheaded the effort, said in a May "Squawk Box" interview that the accounts give children "the miracle of the compound growth, the ability to accumulate wealth, which is transformational." A $1,000 initial deposit boosts the attractiveness of these accounts, too. Although some states, including Connecticut and Colorado, already offer a type of "baby bonds" program for parents, most tax professionals agree that the biggest benefit of Trump accounts is the seed money for children born from Jan. 1, 2025, through Dec. 31, 2028. "There's going to be a nice big check coming into the account," said Evan Morgan, a certified public accountant and tax principal at Kaufman Rossin, in Fort Lauderdale, Florida. Just as advisors recommend deferring enough into a 401(k) plan to benefit from your employer's full 401(k) matching contribution, there is no reason to pass this up. "If the government is giving you free money, you should take it," said Teutsch. Otherwise, most experts say a 529 college savings plan is a better alternative for families because of the higher contribution limits and tax advantages. This year, individuals can gift up to $19,000 to a 529, or up to $38,000 if you're married and file taxes jointly, per child without those contributions counting toward your lifetime gift tax exemption. Generally, 529 plans offer age-based portfolios, which start off with more equity exposure early on in a child's life and then become more conservative as college nears. By the time high school graduation is around the corner, families likely have very little invested in stocks and more in investments like bonds and cash. That can help blunt their losses. "At least in a 529 plan you have more flexibility on what to invest in," Morgan said. Although there are limitations on what 529 funds can be used for beyond higher-education costs, restrictions have loosened in recent years to include continuing education classes, apprenticeship programs and student loan payments. Withdrawals from 529s for nonqualified expenses can be subject to tax and a 10% penalty. Also, as of 2024, families can roll over unused 529 funds to the account beneficiary's Roth IRA without triggering income taxes or penalties, so long as they meet certain requirements. "If you were looking at this compared to a 529, I would almost pick a 529 every time," Henry-Moreland said. In some cases, wealthier families could benefit from fully funding a 529 plan and then putting additional funds in a Trump account, as a way to get a jump start on retirement savings without having to satisfy the earned income component of a traditional IRA or Roth, according to Teutsch. However, "most Americans don't even put one dollar into 529 plans, let alone maxing them out," he said.
The Hill
03-07-2025
- Business
- The Hill
US targets Iran oil trade, Hezbollah with new sanctions
The State Department announced on Wednesday that it would target entities and individuals connected to Iran and Hezbollah with new sanctions. Six entities and four vessels associated with Iran were sanctioned for knowingly engaging in a significant transaction related to the purchase, acquisition, sale, transport, or marketing of petroleum, petroleum products, or petrochemical products from Iran. A network of companies is run by Iraqi businessman Salim Ahmed Said, according to State Department spokesperson Tammy Bruce. 'Concurrently, the Department of the Treasury is designating oil smuggling networks that have collectively transported and purchased billions of dollars' worth of Iranian oil,' Bruce said in a Wednesday statement. 'Treasury is also sanctioning several shadow fleet vessels engaged in the covert delivery of Iranian oil.' Several additional companies and three shadow fleets linked to Iranian oil trades will also face new sanctions. Kaveh Methanol Company, Aria International, Asian Sea Angel Shipping Company, Sai Saburi Consulting Services, Breeze Marine Asset Management and Isle Innovation will be subject to penalties outlined in a separate Wednesday release. 'The Iranian regime continues to fuel conflict and instability in the Middle East, disrupt trade flows, and fund terrorist and proxy groups,' Bruce said of the financial measures. 'Today, the United States is taking action to stem the flow of revenue that the regime uses to support such destabilizing activity, as well as to oppress its own people,' she added. The move comes a week after President Trump said he would permit China to buy Iranian oil without additional U.S. sanctions. 'China can now continue to purchase Oil from Iran. Hopefully, they will be purchasing plenty from the U.S., also,' Trump wrote in a Truth Social post last Tuesday, before the U.S. struck Iran's nuclear development sites. Both the U.S. and China are working to reduce tensions following a trade war in April, while the White House negotiates economic tariff deals with countries worldwide. The State Department said Wednesday it would make an effort to help Lebanon by sanctioning companies connected to the terrorist group, Hezbollah. Seven senior officials and one entity linked to Al-Qard Al-Hassan (AQAH), a Hizballah-controlled financial institution, will face economic restrictions.
New York Post
25-06-2025
- Politics
- New York Post
Tren de Aragua gang kingpin makes FBI's Ten Most Wanted list
A Tren de Aragua kingpin landed on the FBI's Ten Most Wanted Fugitives list — marking the first time a member of the prison gang has made the bureau's famous rogues' gallery. Giovanni Vicente Mosquera Serrano, 37, is wanted for organizing drug trafficking and terrorism operations for the notorious Venezuelan outfit that operates throughout the US and other countries. The FBI highlighted Serrano's addition to the list on Tuesday and announced a $3 million bounty for information leading to the capture of the Venezuelan gangbanger. 'Tren de Aragua is allegedly responsible for sending gang members to the U.S. who engage in drug trafficking, human trafficking, weapons trafficking, and violent crime,' the FBI said in a statement. The gang rose to infamy last year for taking over whole apartment buildings in Colorado, a sanctuary state. 3 Photo of Giovanni Vicente Mosquera Serrano, an alleged senior leader of the Tren de Aragua transnational gang. FBI 3 FBI wanted poster for Giovanni Vicente Mosquera Serrano, alleged senior leader of the Tren de Aragua gang. FBI President Trump later branded Tren de Aragua a terrorist organization and made it a prime target in his sweeping immigration crackdown. Serrano faces charges of conspiracy to provide and providing material support to a foreign terrorist organization, as well as conspiracy and distribution of cocaine in Colombia intended for distribution in the US. The Department of the Treasury also sanctioned Serrano on Tuesday, freezing his assets in the US. 3 Photo of Giovanni Vicente Mosquera Serrano, alleged senior leader of the Tren de Aragua gang. FBI '[Tren de Aragua] remains focused on terrorizing our communities and facilitating the flow of illicit narcotics into our country, relying on key leaders like Mosquera Serrano to finance and oversee their violent operations,' said Secretary of the Treasury Scott Bessent. Trump has designated Tren de Aragua as an invading force under the 1798 Alien Enemies Act, which he has used to deport Venezuelan migrants to a notorious superprison in El Salvador. In April, the Justice Department leveled the first terrorism charge against a Tren de Aragua member, Jose Enrique Martinez Flores, an alleged part of the organization's 'inner circle.'
Straits Times
20-06-2025
- Business
- Straits Times
US sanctions target those providing Iran with defense machinery, Houthi oil trading
FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the U.S. Treasury building in Washington, U.S., January 20, 2023. REUTERS/Kevin Lamarque/ File Photo WASHINGTON - The Trump administration said on Friday it had issued fresh Iran-related sanctions targeting eight entities, one vessel and one person for their alleged role in providing sensitive machinery for Tehran's defense industry. "The United States remains resolved to disrupt any effort by Iran to procure the sensitive, dual-use technology, components, and machinery that underpin the regime's ballistic missile, unmanned aerial vehicle, and asymmetric weapons programs," U.S. Treasury Secretary Scott Bessent said. "Treasury will continue to degrade Iran's ability to produce and proliferate these deadly weapons, which threaten regional stability and global security," he added in a statement announcing the action. Two of the entities include shipping companies based in Hong Kong: Unico Shipping Co Ltd and Athena Shipping Co Ltd, the statement said. The Treasury Department on Friday also issued counterterrorism-related sanctions targeting Yemen's Iran-aligned Houthis over alleged illicit oil trading and shipping, it said in a separate statement. Those sanctions target four individuals, 12 entities, and two vessels over imported oil and other illicit goods to support the Houthis, the department said. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
The Hill
18-06-2025
- Business
- The Hill
How reforming an obscure law could save billions and prevent identity theft
The federal government has long struggled with technology and is far behind private industry in using data to prevent fraud and payment errors. The Computer Matching Act of 1988 is one of the biggest barriers to government using data and technology to safeguard taxpayer dollars from fraud and abuse. Passed when personal computing was brand new, the Computer Matching Act reflected a fear that combining datasets would risk government overreach. This is important, but the Computer Matching Act's overly broad approach also prevents monitoring federal payments the way your bank or credit card monitors your payments. This law is a huge impediment to technology that could prevent fraudsters from exploiting programs meant to help Americans coping with situations ranging from disasters to retirement to economic shifts. It is also an obstacle to protecting Americans from identity theft. In 2024, the absence of effective technology to safeguard payments resulted in an estimated $135 billion in overpayments, meaning the government paid out too much either accidentally or in response to a malicious actor. In 2023 that estimate was $175 billion. The Computer Matching Act established a painful bureaucratic process in which agencies must draft agreements between agencies to compare data, establish Data Integrity Boards to assess cost-benefit analyses to justify matching activities, publish details about the analyses, and submit reports to the Senate. All of this must be done once every 18 months just to perform basic analytical activities. Worse, data matching agreements have historically taken a long time to approve. When I was the director of an analytics center at the Department of the Treasury, one request to combine data sat for more than two years. The inability to combine data across payment programs prevents basic safeguards, such as identifying when a fraudster applies for multiple benefits with the same personal information. Schemes like this were rampant during the pandemic and diverted $5.4 billion from a single loan program away from citizens needing help and into the hands of bot farms and illegal actors. The Government Accountability Office's solutions for these kinds of improper payments include requiring agencies to report on antifraud controls and assess risks. Yet these solutions — which GAO has been recommending for years — would largely be a waste of taxpayer dollars. New and more complex monitoring and reporting of a problem that is already so well documented will not solve the problem. It amounts to merely watching the theft happen, all the while increasing administrative costs. We need real data-centric technology solutions, and these cannot be developed as long as a nearly four-decade-old law prohibiting comparing data is in place. I want the government to alert me if someone is using my name and Social Security number to apply for disaster assistance for a hurricane in Florida when I live in Pittsburgh. I want the government to alert me and stop someone from using my name to apply for unemployment payments when I am gainfully employed. What happens if another economic crisis occurs and I need that temporary support, but a terrorist organization has already stolen those dollars, using up my eligibility and putting those dollars to a terrible purpose? In the same way your credit card company combines your travel data with your purchases to detect that your account is being used at a gas station four time zones away, the federal government should monitor financial payments to prevent identities from being misused. The elimination of these bureaucratic approval processes would enable the same basic analytics in government that we already expect of financial services companies. I recognize that many people have concerns about government overreach. For some, those fears have been heightened by the Department of Government Efficiency's use of data. Many may feel this is not the right time to change legislation that could serve as a safeguard to overreach. And yet as Congress and the administration contemplate reducing budgets related to the social safety net, those dollars become even more critical to protect. In addition, we need a modern view of the role the government plays in identity theft. Government programs are a source of vulnerability for our identities to be exploited, and yet there is no program to stop bad payments even though the federal government could do so, just like your bank. The Federal Trade Commission has a process for reporting identity theft and will help you to develop your own personal recovery plan, but this is fixing damage that should have been prevented and requires hours of your own work. Reforming the Computer Matching Act could not only save billions, but it could protect Americans from ruinous identity theft that diverts their tax dollars from support they may need in a crisis. It's time for the federal government to stop talking about fraud and start using data and technology to protect its citizens and our taxes from falling into the hands of bad actors, terrorists and others interested in making America more vulnerable. As Congress works toward a budget and considers new legislation to reshape the government, an update to the Computer Matching Act should be on its to-do list. Joah G. Iannotta, Ph.D., is the former acting deputy assistant commissioner for data at the U.S. Treasury. She is a former senior vice president at one of the nation's largest banks, where she worked to use data to strengthen payment integrity.
