Trump Accounts: Roth Conversion Opportunities and New IRS Gift Tax Guidance

Trump Accounts are designed to help families save for a child’s future, but one of their most valuable tax planning opportunities may not occur until the beneficiary reaches adulthood.

When the beneficiary turns 18, the account generally converts to a traditional IRA. At that point, the beneficiary may choose to convert some or all of the account to a Roth IRA. Although taxes may apply to a portion of the conversion, the potential for decades of tax-free growth can make this an attractive long-term strategy.

In addition, the IRS recently issued new guidance that simplifies gift tax reporting for many family contributions to Trump Accounts.

Why Consider a Roth Conversion?

Once a Trump Account converts to a traditional IRA at age 18, the beneficiary generally has the option to convert those funds to a Roth IRA.

A Roth conversion may be beneficial because:

• Future qualified withdrawals from the Roth IRA are generally tax-free.
• Future investment growth can occur tax-free inside the Roth IRA.
• Many young adults have relatively low taxable income, which may allow them to convert funds while in a lower federal income tax bracket.

Since contributions to Trump Accounts are generally made with after-tax dollars, those contributions typically are not taxed again during the conversion. However, investment earnings and other pre-tax amounts may be subject to income tax when converted.

Should You Convert All at Once?

Not necessarily.

For many beneficiaries, converting the entire account in one year could push them into a higher tax bracket. Instead, it may make sense to spread Roth conversions over multiple years to help manage taxable income while maximizing long-term tax benefits.

A tax advisor can help determine the most tax-efficient conversion strategy based on the beneficiary’s income and financial goals.

Don’t Overlook the Kiddie Tax

Families should also consider whether the beneficiary is still subject to the kiddie tax.

If the beneficiary remains a dependent, the taxable portion of the Roth conversion may be taxed at the parents’ higher marginal tax rate instead of the child’s tax rate.

In some situations, waiting until the beneficiary is no longer subject to the kiddie tax rules may result in a lower overall tax bill.

New IRS Guidance on Trump Account Contributions

The IRS recently issued Revenue Procedure 2026-25, which provides a safe harbor allowing eligible contributions to Trump Accounts to qualify for the annual gift tax exclusion.

If all requirements are met, donors generally do not need to file IRS Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) solely because they contributed to a Trump Account.

To qualify for the safe harbor:

• The donor must be an individual.
• The contribution must be the donor’s only taxable gift for the year.
• Total gifts cannot exceed the annual gift tax exclusion ($19,000 per recipient in 2026).
• The contribution cannot create gift tax or generation-skipping transfer tax liability.
• The donor cannot otherwise be required to file a federal gift tax return.

Families making larger gifts or using more complex estate planning strategies should consult their tax advisor to determine whether the safe harbor applies.

Planning Ahead Can Maximize Long-Term Tax Benefits

The value of a Trump Account may extend well beyond the beneficiary’s 18th birthday.

By carefully planning Roth conversions and understanding the latest IRS guidance, families may be able to maximize tax-free retirement growth, reduce future tax liability, and simplify gift tax reporting.

Because every family’s financial situation is different, it’s important to evaluate the timing and tax implications before making a conversion.

Frequently Asked Questions

What happens to a Trump Account when the beneficiary turns 18?

• Under current rules, the account generally converts to a traditional IRA. The beneficiary may then have the opportunity to convert some or all of those funds to a Roth IRA, depending on their financial situation.

Is a Roth conversion taxable?

• Potentially. Contributions that were made with after-tax dollars generally are not taxed again. However, investment earnings and other pre-tax amounts may be taxable when converted to a Roth IRA.

Should a beneficiary convert the entire account at once?

• Not always. Spreading conversions over multiple years may help reduce the overall tax impact, particularly if it keeps the beneficiary in a lower income tax bracket.

Does the kiddie tax affect Roth conversions?

• It can. If the beneficiary is still subject to the kiddie tax, the taxable portion of the conversion may be taxed at the parents’ marginal tax rate instead of the beneficiary’s rate.

Do contributions to a Trump Account require a gift tax return?

• Not necessarily. Under Revenue Procedure 2026-25, eligible contributions that meet the safe harbor requirements generally qualify for the annual gift tax exclusion and do not require the donor to file Form 709 solely because of the contribution.

Have Questions About Trump Accounts?

Trump Accounts can create valuable long-term planning opportunities, but the tax implications of Roth conversions and gift tax rules depend on your individual circumstances.

If you have questions about Trump Accounts, Roth conversions, or the latest IRS guidance, contact your Wilkins Miller advisor. We can help you evaluate your options and develop a tax-efficient strategy that supports your family’s long-term financial goals.