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Trump Accounts Could Create Tax Filing Headaches for Parents, Experts Warn

MarketDash Editorial Team
1 day ago
A drafting oversight in the Trump Accounts legislation means parents who contribute to their children's accounts may face one of the IRS's most complex filing requirements, turning a simple savings plan into a paperwork nightmare.

Here's an unexpected wrinkle in the Trump Accounts rollout: financial experts say parents who want to boost their kids' government-backed savings might accidentally trigger one of the IRS's most dreaded filing requirements. And we're talking about a form so complicated that tax professionals charge hundreds of dollars just to fill it out.

The Future Interest Problem

The Washington Post reports that the "One Big Beautiful Bill" passed this summer contains what appears to be a drafting oversight. While the government's initial $1,000 contribution and major charitable pledges from donors like Michael Dell and Susan Dell are protected, money contributed by parents falls into a peculiar tax trap.

The technical issue revolves around how the IRS classifies gifts. Under federal gift tax rules, contributions are only exempt if the recipient has immediate access to the funds. Since Trump Account money is locked away until the child hits 18, the IRS treats these deposits as gifts of "future interest." That classification matters more than you'd think.

Any parental contribution, whether it's the $5,000 maximum or just $25, requires filing IRS Form 709. "It's going to create a compliance nightmare," Amber Waldman, senior director for estate and gift tax at RSM US, told the Washington Post.

Form 709: The Tax Document Nobody Wants

If you've never heard of Form 709, consider yourself lucky. This 10-page beast is typically filed by wealthy individuals making large gifts, and tax professionals describe it as one of the most complex documents the IRS produces. The average completion time? More than six hours.

Here's the kicker: Form 709 can't be e-filed. You have to mail it in like it's 1995. Popular tax software like TurboTax doesn't support it, meaning most parents would need to hire a tax professional or wade through the complexity themselves.

Looking for a Legislative Solution

Tax experts are pushing for Congress to pass a fix similar to what exists for 529 college savings plans, which have exemptions that sidestep this exact problem. MarketDash reached out to Altimeter Capital, the firm run by "Invest America" architect Brad Gerstner, and the Tax Foundation to ask whether a legislative correction is in the works.

Until lawmakers address the issue, tax attorneys are giving parents clear advice: take the free government money, but hold off on adding your own. "Don't put your own money in until this is clarified," tax lawyer Susan Bart told the Washington Post.

Market Snapshot: Benchmark Indices Slip After Data Deluge

In broader market news, major U.S. indices declined last week following a wave of delayed economic data releases, though all three benchmarks managed to close higher on Friday. The S&P 500 dropped 0.37% for the week, while the Nasdaq Composite slipped 0.10% and the Dow Jones fell 0.95%.

The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 respectively, both finished Friday in positive territory. SPY climbed 0.91% to $680.59, while QQQ advanced 1.30% to $617.05, according to market data.

Futures for all three major indices were trading higher on Monday.

Back to Stock Market News

Trump Accounts Could Create Tax Filing Headaches for Parents, Experts Warn

MarketDash Editorial Team
1 day ago
A drafting oversight in the Trump Accounts legislation means parents who contribute to their children's accounts may face one of the IRS's most complex filing requirements, turning a simple savings plan into a paperwork nightmare.

Here's an unexpected wrinkle in the Trump Accounts rollout: financial experts say parents who want to boost their kids' government-backed savings might accidentally trigger one of the IRS's most dreaded filing requirements. And we're talking about a form so complicated that tax professionals charge hundreds of dollars just to fill it out.

The Future Interest Problem

The Washington Post reports that the "One Big Beautiful Bill" passed this summer contains what appears to be a drafting oversight. While the government's initial $1,000 contribution and major charitable pledges from donors like Michael Dell and Susan Dell are protected, money contributed by parents falls into a peculiar tax trap.

The technical issue revolves around how the IRS classifies gifts. Under federal gift tax rules, contributions are only exempt if the recipient has immediate access to the funds. Since Trump Account money is locked away until the child hits 18, the IRS treats these deposits as gifts of "future interest." That classification matters more than you'd think.

Any parental contribution, whether it's the $5,000 maximum or just $25, requires filing IRS Form 709. "It's going to create a compliance nightmare," Amber Waldman, senior director for estate and gift tax at RSM US, told the Washington Post.

Form 709: The Tax Document Nobody Wants

If you've never heard of Form 709, consider yourself lucky. This 10-page beast is typically filed by wealthy individuals making large gifts, and tax professionals describe it as one of the most complex documents the IRS produces. The average completion time? More than six hours.

Here's the kicker: Form 709 can't be e-filed. You have to mail it in like it's 1995. Popular tax software like TurboTax doesn't support it, meaning most parents would need to hire a tax professional or wade through the complexity themselves.

Looking for a Legislative Solution

Tax experts are pushing for Congress to pass a fix similar to what exists for 529 college savings plans, which have exemptions that sidestep this exact problem. MarketDash reached out to Altimeter Capital, the firm run by "Invest America" architect Brad Gerstner, and the Tax Foundation to ask whether a legislative correction is in the works.

Until lawmakers address the issue, tax attorneys are giving parents clear advice: take the free government money, but hold off on adding your own. "Don't put your own money in until this is clarified," tax lawyer Susan Bart told the Washington Post.

Market Snapshot: Benchmark Indices Slip After Data Deluge

In broader market news, major U.S. indices declined last week following a wave of delayed economic data releases, though all three benchmarks managed to close higher on Friday. The S&P 500 dropped 0.37% for the week, while the Nasdaq Composite slipped 0.10% and the Dow Jones fell 0.95%.

The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 respectively, both finished Friday in positive territory. SPY climbed 0.91% to $680.59, while QQQ advanced 1.30% to $617.05, according to market data.

Futures for all three major indices were trading higher on Monday.