Trump Accounts: Free Money for Your Kids—With a Catch

Why Additional Contributions Trigger the Burdensome IRS Form 709 and How Government Can Quickly Alleviate This 

Starting July 4, 2026, millions of American families will have access to free money from our government and a new way to save for their children’s futures. The savings vehicles, officially called Section 530A accounts, but widely known as “Trump Accounts,” were created under the One Big Beautiful Bill Act signed last summer. 

The pitch is simple: the federal government will seed these accounts with $1,000 for children born between 2025 and 2028. Additionally, everyone can set up these accounts for children under age 18 and families can contribute up to $5,000 annually to watch those savings grow tax deferred. A contribution, however, requires the filing of the 10-page IRS Form 709. (The IRS estimates it takes an average of six hours to complete, and it’s so specialized that consumer tax software like TurboTax hasn’t supported it.)

Nonetheless, jump-starting children’s savings like this signals the government endorsing children to save early as the accounts can become substantial in time. For example, the $1,000 government seed contribution alone, invested for 18 years at a 7% inflation-adjusted return, could grow to over $3,300. Leave it untouched until retirement, and that modest sum could exceed $80,000.

Incentivized by this idea, Michael and Susan Dell have pledged $6.25 billion to fund $250 contributions to Trump Accounts for approximately 25 million children aged 10 and under who were born before January 1, 2025—and therefore missed the $1,000 government seed contribution. Children also have to live in a ZIP code where the median annual household income is $150,000 or less to qualify for the benefit.

In addition to the free money, family members can open an account for any child under 18 using IRS Form 4547 or through the government’s online portal. Contributions to these accounts have the same annual limit of $5,000. Once established, the account invests exclusively in low-cost index funds tracking broad U.S. stock markets—think S&P 500—with annual fees capped at 0.1%.

The money stays locked until the child turns 18, the so-called “growth period,” at which point the account converts to an account following the rules of a traditional IRA. Withdrawals before age 59 1⁄2 face a 10% penalty, though exceptions exist for first-time home purchases, higher education expenses and significant medical costs. 

Withdrawals after age 59 ½ are taxed at ordinary income tax rates, except for the amount of money contributed by family members, which comes out tax-free. But this is where things get complicated. 

When Congress created 529 college savings plans decades ago, lawmakers explicitly designated contributions as eligible for the annual gift tax exclusion. That means grandparents can contribute up to $19,000 per year to a grandchild’s 529 without any gift tax paperwork.

Congress didn’t include the same provision for Trump Accounts. Because children can’t access the money until they turn 18, contributions are technically “future interest” gifts under current tax law. The result? Every contribution—whether $25 or $5,000—requires the donor to file Form 709, the federal gift tax return. “No big deal, let the software do the form” you say. And here’s the catch.

To reiterate, Form 709 is no ordinary tax form, with its substantial length and time to complete, as well as its absence from consumer tax software. Also, in the past, the agency only accepted mailed paper submissions. But that is scheduled to change this tax season as the IRS plans to accept e-filed gift tax returns. 

Most of us tax professionals believe this is a legislative drafting oversight rather than intentional policy. The accounts are designed for middle-class families making modest contributions—not the ultra-wealthy clients who typically navigate Form 709. Requiring complex gift tax filings for a $100 contribution to a child’s savings account seems plainly inconsistent with Congress’s intent.

Unfortunately, the IRS cannot fix this on its own. The present interest requirement for gift tax exclusions is embedded in the tax code itself. The Treasury has regulatory authority to interpret existing law, but it cannot create new exemptions that Congress hasn’t authorized. A statutory fix—similar to what was done for 529 plans—would require legislation.

No such legislation has been proposed. However, there may be an administrative workaround. The IRS could develop a simplified version of Form 709 specifically for taxpayers whose only reportable gift is a Trump Account contribution. A streamlined one-page form, perhaps with electronic filing capability, could dramatically reduce the compliance burden while staying within existing legal boundaries.

Financial advisers offer practical guidance. First, absolutely claim the free money. If your child qualifies for the $1,000 government contribution or the Dell Foundation gift, there’s no reason not to open an account. Those contributions don’t come from you, so they don’t trigger any gift tax filing requirement on your part.

Second, consider alternatives. Contributions to 529 plans are still good strategies and qualify for the annual gift tax exclusion, meaning no Form 709 headaches. These vehicles also provide more investment flexibility than Trump Accounts, which are limited to U.S. equity index funds. And if the money in the 529 plan is used for the qualifying educational expenses, the earnings comes out tax-free. The key to the Trump account is tax-deferral, ultimately not tax savings. 

The bottom line? Trump Accounts offer a genuine opportunity to build long-term wealth for children, especially those who receive government or philanthropic seed money. But until Congress or the IRS addresses the gift tax paperwork problem, families considering their own contributions should proceed with eyes open—and perhaps a tax professional on speed dial.

This article is for informational purposes only and does not constitute tax or legal advice. Consult a qualified professional regarding your specific situation.