Trump Accounts Reach Nearly 70 Million Children

More than 60 million children were automatically enrolled in Trump accounts on Oct. 7, bringing the total number of Section 530A accounts to nearly 70 million, according to the Treasury Department. The accounts are intended to help children save before adulthood.

About 7 million children had opened or opted into the accounts before the automatic enrollment. The new accounts were created for children younger than 18 who have valid Social Security numbers, without requiring a parent or guardian to open an account first.

A parent or guardian must claim an account to manage it and authorize qualifying contributions. The accounts generally become available to the child at age 18.

Automatic enrollment creates the account but does not deposit money into it. That differs from automatic enrollment in workplace retirement plans, where contributions are typically deducted from an employee’s paycheck.

“Automatic enrolling gets more people invested earlier, and when you’re talking about children, that potentially creates decades of additional compounding,” AJ Kletkin, a New York-based private wealth adviser at Private Advisor Group, told reporters.

Trump accounts currently offer certain low-cost index funds. A proposal issued Sept. 30 by the Internal Revenue Service and Treasury would establish a process for donors to contribute individual stocks to accounts held by at least 5,000 children in a qualified state or geographic area.

The proposal could allow companies and other donors to give appreciated stock for charitable purposes without paying capital-gains taxes on the increase in value. Recipients generally would have to hold the donated shares for at least five years.

The holding requirement has raised questions about diversification. Brian Boswell, co-founder and senior wealth adviser at The Retirement Studio in Georgetown, Texas, noted that children could receive shares chosen by donors rather than diversified funds. He also suggested that the five-year period could discourage many recipients from selling the same stock immediately after receiving it, although sales could occur after the period ends.

The proposed system has also raised questions about how stock donations would be administered for millions of accounts. Joseph Medina, a Washington-based partner at EY Private, expects Treasury to maintain one large omnibus account and divide the holdings among individual accounts as children claim them.

The IRS and Treasury are accepting public comments on the proposal through Nov. 30. The agencies have not finalized how stock contributions would be processed and distributed.