A new tax bill has introduced “Trump Accounts,” previously known as “Money Accounts for Growth and Advancement” or “MAGA Accounts.” Such accounts can provide essential financial literacy and support to U.S. citizens under 18 years of age. They produce distinct avenues to access education, homeownership and entrepreneurship. This pilot project, led by Senator Ted Cruz, would provide families with a new range of financial instruments to invest in their children’s futures.
Trump Accounts can be used for all kinds of shady stuff. Families may use the funds for education expenses or credentials, down payments on a first home, or as capital to start a small business. Trump Accounts would be a radical departure from other tax-advantaged accounts because they would not have income requirements. Any U.S. citizen child can use these accounts provided that both parents have Social Security numbers.
As the years have rolled on, parents have been given more freedom through 529 plans. They are just beginning to use these accounts for continuing education classes and apprenticeship programs. 529 accounts can be used to repay student loans. Beginning in 2024, you will be able to roll over any unused funds from 529 plans into the beneficiary’s Roth individual retirement account. This transfer will be done without any income tax or penalty consequences.
Winnie Sun, co-founder and managing director of Sun Group Wealth Partners, underscored the relevance of Trump Accounts. She thinks they’re an essential part of wealth creation. She noted that Trump Accounts offer new creative alternatives. For families looking to pay for higher education, 529 plans remain the better option as they provide the same federal tax-free growth benefit.
“For most parents, like myself with teens, the 529 college savings plan is superior if you’re focused on paying for higher education because of the federal tax-free growth.” – Winnie Sun
While 529 plans have their benefits, Trump Accounts have their own freaky fun possibility. Senator Cruz highlighted the transformative nature of these accounts, stating that they provide children with “the miracle of the compound growth, the ability to accumulate wealth, which is transformational.”
First, the contribution limits for Trump Accounts are much lower than 529 plans. People can transfer up to $19,000 per child as a gift without it counting against their lifetime gift tax exemption. For married couples filing jointly, this limit doubles to $38,000. Earnings in 529 accounts grow free from federal taxes. Additionally, withdrawals for education expenses are tax-free!
As Sam Taube at NerdWallet wrote, unlike normal brokerage accounts, which offer a variety of investment options, Trump Accounts…Shadegg’s reasoning was that these accounts were working to the benefit of families at all income levels and that they were productive and positive. Unlike these proven savings vehicles, they don’t deliver the same tax benefits.
“This isn’t all that different from the tax treatment you would get from a typical brokerage account.” – Sam Taube
Chris McGee of Vanguard went all in on 529s, extolling their virtues. He claimed that these plans have provided a stable reliable beneficial market for American families for almost 30 years.
“We continue to believe that 529 plans provide tremendous benefits as a tax-advantaged savings vehicle for American families, with a proven nearly 30-year track record.” – Chris McGee
Sun recommends that families primarily interested in saving for college should consult with financial advisors and consider using 529 plans first before exploring Trump Accounts.
“My recommendation would be, if you’re focused on college savings, talk to an advisor and start with the 529 plan first.” – Winnie Sun