Treasury proposes $2,500 pre-tax Trump Account contributions
Advisors should weigh the modest deduction against 529 plans and other vehicles.
Bloomberg reported that the Treasury Department proposed a rule allowing parents to shield up to $2,500 a year in wages from federal income tax by making pre-tax contributions to Trump Accounts, similar to health savings accounts. The proposed rule, not yet final, goes beyond Congress's original parameters for the accounts created last year. Trump Accounts grow tax-deferred and convert to traditional IRAs at adulthood; withdrawals are taxed as income. The proposal doesn't resolve withdrawal tax treatment, and 529 plans may offer better benefits for education savings.
The proposal makes funding Trump Accounts more attractive without changing the underlying account, as CFP Taylor Hart noted. Advisors should compare the after-tax benefit against 529 plans, especially for education goals. The unresolved withdrawal tax treatment adds complexity, and the rule is not final, so planning should account for potential changes.
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