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One of the most anticipated tax-planning strategies that came out recently is the 530A account, or the "Trump Account." It is basically an individual retirement account (IRA) for children who do not have earned income. The child is the legal owner of the account, and the parent is the custodian until the child reaches the age of 18. There are a few rules to follow:

-- The child must be under the age of 18 the calendar year the election is made.

-- The child must have a Social Security number and be a U.S. citizen.

-- If the child was born between Jan. 1, 2025, and Dec. 31, 2028, he or she is eligible for a $1,000 Treasury deposit once an account is opened.

-- Legal guardians, parents, adult siblings or grandparents can open the account on behalf of the child.

Mechanics are important. You must submit an IRS Form 4547, making the Trump Account election with your tax return, or go to www.trumpaccounts.gov and download the app that allows you to manage the account. After submitting Form 4547, the person setting up the account will receive an email with instructions on how to complete the registration. If eligible, the account will automatically receive the one-time $1,000 funding. You can also contribute up to $5,000 per year (adjusted for inflation).

One question that was clarified recently is that no gift tax return (709) is required for the contributions, so there are no further filing requirements after the Form 4547.

When the child reaches 18, the Trump Account is converted to an IRA. One benefit of the account switching to an IRA is it can subsequently be converted to a ROTH IRA. The child could have 41 years of growth in the ROTH and tax-free distributions in retirement.

The power of these accounts is enormous. According to the White House, if you fully fund the Trump Account every year, the child could have $303,000 by the age of 18 and more than $1 million by the age of 28 (assuming you continue to make IRA contributions up to age 28). There are plenty of restrictions and limitations, but overall, it's a great way to give your kids a head start in retirement savings.

I see this as a great opportunity to fund an IRA for your kids without having to go through the hassle of farm payroll. I like it so much that I set up Trump Accounts for my kids. It also works with my strategy on wealth transition. I would rather give a little amount early and often than all of it when I die and possibly have to pay estate tax.

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DTN Tax Columnist Rod Mauszycki, J.D., MBT, is a tax principal with CLA (CliftonLarsonAllen) in Minneapolis, Minnesota. Read Rod's "Ask the Taxman" column at https://www.dtnpf.com/…. You can also reach Rod at taxman@dtn.com.

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