‘more unanswered questions than answered,’ expert says

After a massive promotional campaign, multiple 1 million people They signed up for Trump accounts, according to a White House post in x — well ahead of the July launch date.

“Free money” is probably a great incentive. The federal government said it will make a one-time contribution of $1,000 to the accounts of all eligible children born on or after Jan. 1, 2025, through Dec. 31, 2028. A growing number of companies have pledged to match Treasury deposits for employees’ children, and philanthropists in many states have pledged to seed accounts for families who meet certain conditions.

“The President called on business leaders and philanthropists across the country to join the initiative,” Treasury Secretary Scott Bessent said Friday at the Economic Club of Dallas. he said.

But beyond initial deposits, many questions remain about how to manage and invest in these accounts.

“There are more unanswered questions than answered at this point,” said Mary Morris, CEO of Commonwealth Savers, the organization that manages the national Invest529 program. A 529 college savings plan is another tax-advantaged investment option for families to save on behalf of their children.

“There are a lot of good things out there, but there are still a lot of unknowns about how it will work,” Morris said.

For starters, it’s not entirely clear how to verify Trump account applications.

To create a Trump account, also known as a 530A account, parents or guardians must complete IRS Form 4547 with their parents. 2025 tax return or through TrumpAccounts.gov. Then there’s an “authentication process” that’s expected to begin in May. The federal government’s initial funding is expected to arrive on July 4, although there are no details yet on what this will involve. white house.

The Trump account site shows a mock-up of a yet-to-be-released app interface that tracks the gains of select stocks. But Treasury guidance says Trump accounts will be invested in “broad U.S. stock index funds,” such as mutual or mutual funds. Exchange-traded funds, not individual stocks like Nvidia.

While “100% stock investment options” have their benefits, a recent study Pioneer The research note points out that Trump accounts do not “incrementally reduce risk to bond allocations” like other account types, such as 529s. These typically start with more equity exposure early on and then become more conservative over time as the target date for the launch approaches.

When U.S. stock markets open on Monday, July 6, the post-holiday trading week could potentially kick off with more than 3.5 million accounts pre-funded with $1,000 grants for newborns, based roughly on the number of babies born in a year. CDC data.

If each of these accounts were hypothetically funded by another $1,000 employer match and $500 family contribution, there would be an inflow of $8.75 billion into the market, according to Christopher Mistal, director of research at Stock Trader’s Almanac.

Still, that figure is only 1.7% of the market’s average daily activity, far less than the significant capital inflows resulting from the Fed’s bond-buying program known as quantitative easing, Mistal told CNBC.

“Less participation and/or less account funding reduces the percentage even further,” he wrote in a follow-up email. He added that if the program is spread over several trading sessions, it will further reduce market impact.

“At best, with high engagement and funding, Trump accounts could have a modest but hard-to-measure bullish effect that is already in a historically bullish period.” Mistal said of the typical timing of an event: mid year rally in July.

“Even if you traded all of the kids’ funds in a single trade on a single day, that would still be a relatively small percentage of the overall market trading volume on that day,” Matt Lira, co-founder of Invest America, the nonprofit advocacy group behind the Trump accounts, told CNBC in an interview.

Invest America also paid for a Super Bowl commercial for the Trump account and promoted new investment accounts aimed at children.

Although the Treasury has said the Trump accounts will be held by a “designated financial representative” whose identity has not yet been made public.

“My main questions now stand: Who will be responsible?” said Henry-Moreland.

The custodian of the account will likely need to keep track of the beneficiary’s basis, or the non-taxable portion of the account, and any subsequent gains that are taxable.

Additionally, investors may need to consider custody fees, which may reduce returns. Zach Teutsch, founder and managing partner of Values ​​Added Financial in Washington, D.C., previously told CNBC. Teutsch is a member of CNBC’s Council of Financial Advisors.

Another potential sticking point is the requirement to file a gift tax return. Because parents, guardians, grandparents and others can contribute up to $5,000 a year, after-tax, to Trump accounts, experts say they may have to file a gift tax return even if the total amount they donate is below the annual exclusion amount. The annual exemption for gifts for 2026 is as follows: $19,000 per buyer.

To qualify for the annual exemption, gifts must be “current interest,” with instant recipient access. Some financial advisors question whether Trump account gifts meet these criteria, which could trigger gift tax return filing requirements.

Invest America’s Lira told CNBC that the Treasury Department is “aware of the issue” regarding the potential gift tax return filing. “They’re following this issue very closely,” he said.

Lira said the Treasury “will continue to issue guidance on these questions going forward.”

Exactly how distributions will be taxed, including contributions from parents, qualified charities, and the government, is another issue the IRS will need to clarify later.

Trump account investors should of course plan for future taxes on withdrawals, experts say.

“These accounts behave like this [individual retirement accounts],” said the certified financial planner Marianela Collado is CEO of Tobias Financial Advisors in Plantation, Florida. Your pre-tax funds are subject to regular income taxes upon withdrawal, he said.

Additionally, withdrawing funds before age 59½ may trigger a 10% penalty. some exceptionsCollado, who is also a certified public accountant and a member of CNBC’s Financial Advisor Council, said:

You’ll need records of your pre-tax and after-tax Trump account contributions to calculate taxes on future withdrawals, he said.

Trump account funds grow tax deferred until withdrawn. There is no upfront tax deduction for after-tax contributions, but earnings are taxable upon withdrawal. Meanwhile, pre-tax contributions are excluded from income, but you will owe future taxes on the contribution plus future growth.

Here’s a breakdown:

• Direct parental contributions – after tax
• Pilot program $1,000 — before tax
• Employer contributions – before tax
• Other qualified contributions – before tax
• Future contribution increase — pre-tax

Experts say if you don’t track after-tax funds, you could pay regular income taxes on any withdrawals you make from the Trump account in the future.

Invest America’s Lira told CNBC that long-term tracking of Trump account funding sources and future tax implications is “clearly concerning for financial institutions and something to consider.”

“Our conversations with these financial institutions have shown that there are solutions for tracking information throughout the life of the account,” he said.

For now, financial advisors generally recommend that families who qualify for any “free money” open a Trump account and decide whether to add additional funds once all the information is available.