New Trump Accounts, Old Tax Problems: What U.S. Expats Need To Know
- Jul 15
- 5 min read
Trump Accounts are a new, child-focused U.S. retirement vehicle that behave a lot like a “starter IRA” with 529‑style contribution flexibility, but with the child as the actual account owner from day one. For U.S. expat families, the cross‑border treatment is where the landmines are: local tax authorities may ignore the U.S. framing and treat these as ordinary investment accounts, trusts, or even as parent‑owned assets, so you cannot just “set and forget” them.
What Trump Accounts Are
Trump Accounts were created under the One Big Beautiful Bill Act (OBBBA) as a special type of traditional IRA for minors under 18. Any child with a valid Social Security number who has not yet turned 18 by year‑end can have one, and only one account is permitted per child. Contributions are after‑tax (no deduction), earnings grow tax‑deferred, and withdrawals are taxed as ordinary income at the beneficiary’s rate, much like a traditional IRA.
Key structural points that matter for planning:
The account is legally in the child’s name, with a parent/guardian as “responsible party” or custodian until age 18.
The government may make a one‑time US$1,000 contribution for eligible children born between 2025 and 2028, but that seed money does not change who owns the account.
Contributions are generally capped at US$5,000 per year (indexed from 2028), with broad eligibility for who can contribute (family, friends, employers, etc.).
Growth Phase: Birth To The Year Before 18
The “growth period” runs from the date the Trump Account is established through December 31 of the year before the child turns 18. During this period, the account is still a traditional IRA under U.S. law, but with extra constraints that are very relevant for expats:
No distributions are allowed (with very narrow exceptions), so practically this is a locked box until age 18.
Investments are heavily constrained – typically broad‑based U.S. equity index funds or similar low‑cost vehicles with tight fee caps.
Contributions have their own separate limit and cannot be deducted by contributors.
For U.S. expat families, the real risk is that foreign tax systems do not care that U.S. law labels this “retirement.”
Things a non‑U.S. jurisdiction might do during the growth phase:
Treat the account as a regular investment account in the child’s name and tax all dividends, interest, and capital gains annually.
Treat the parent as the de‑facto owner/custodian and attribute income to the parent under local attribution or “kiddie tax”‑style rules.
Treat the arrangement as a type of trust or foundation, particularly in countries that dislike ring‑fenced, tax‑favored foreign wrappers.
Because no foreign guidance on Trump Accounts exists yet, each expat case will come down to analogies: how that country already treats IRAs, Roth IRAs, 529s, and custodial accounts. You should assume mismatch risk by default rather than assuming foreign deferral will be respected.
After 18: Trump Account Becomes (Mostly) A Regular IRA
Beginning January 1 of the year the beneficiary turns 18, most of the special Trump‑specific rules drop away and the account is governed largely by standard traditional IRA rules, even though it remains labelled a Trump Account. At that point:
The child (now adult) gains full control; the parent custodian loses legal control.
Distributions become permitted and are taxed like any traditional IRA distribution, generally at the account owner’s marginal U.S. rate and potentially subject to the 10% early withdrawal penalty before age 59½, with standard IRA exceptions (education, first home, etc.).
The account can be kept as is, rolled to a conventional traditional IRA, or even converted to a Roth IRA if the beneficiary chooses.
For expats, the post‑18 phase introduces two new risks:
The now‑adult child may be a tax resident of a country that taxes IRA withdrawals harshly or does not recognize the IRA as a pension at all, turning “tax‑deferred U.S. income” into fully taxable local income.
Any Roth conversion strategy done while the child is a resident abroad may trigger local tax on the embedded gains, even though the U.S. sees it as a nontaxable rollover or a taxable conversion with future exempt growth.
So the “18 switch” is not just a legal technicality – it is a planning deadline for coordinating residency, treaty positions, and distribution/conversion strategy.
Trump Accounts vs 529 Plans: Why Ownership Really Matters
It is tempting to think of Trump Accounts as “529s for everything, not just college,” but that analogy breaks down fast at the cross‑border levels.
Structural differences that matter
Feature | Trump Account | 529 Plan |
Legal owner | Child (minor), with adult responsible party/custodian | Parent or other adult; child is beneficiary only (not owner) |
U.S. tax treatment of growth | Tax‑deferred, taxed on withdrawal like traditional IRA | Tax‑free if used for qualified education expenses |
Withdrawals before 18 | Generally prohibited | Allowed, but nonqualified withdrawals face tax and penalty |
Use‑of‑funds restrictions | No specific use required; not education‑limited | Education‑focused; qualified expenses get tax benefits |
Post‑18 status | Behaves like traditional IRA; adult child controls | Remains parent‑owned; beneficiary can often be changed |
Why this matters for expats:
With a 529, foreign authorities often see the funds as parent assets, or as a specialized education fund, making some countries more tolerant of deferral.
With a Trump Account, the child is the owner, so local “under 18” or “family attribution” rules become critical, and after 18 the account is clearly the adult child’s foreign retirement asset – which can collide with local wealth taxes, PFIC regimes, or pension rules.
Why Capital Gains Harvesting Can Make Sense In The Growth Phase
One counter‑intuitive strategy in the Trump Account growth phase is deliberate capital gains harvesting – realizing gains inside the account even when you don’t “need” to. In a normal taxable account this often creates an immediate tax bill; inside a Trump Account it usually does not, because growth is tax‑deferred under U.S. rules. The result is that you can reset cost bases upward without triggering current U.S. tax, while keeping the same overall market exposure.
Why bother? From a cross-border perspective, many countries may tax future gains based on local notions of cost base and holding period, not on how the U.S. sees it. Systematically realizing gains during the growth phase and immediately reinvesting can leave the portfolio holding the same securities but with a much higher cost base. If a foreign tax authority later treats the account as locally taxable, more of the future return will show up as “already‑realized” from their perspective, and less as fresh, locally taxable gain.
Thoughtful gains harvesting during the growth years can therefore be used to “pre‑load” gains into a period when the child's total income is likely to remain below "standard deduction" thresholds and might not trigger local income tax. This can effectively shift part of the tax burden away from your child’s adult years, when they might be higher‑rate taxpayers.
Conclusion
Trump Accounts are being sold as simple savings vehicles for kids; for U.S. expat families, they are anything but simple. The choice is not “Trump Account or nothing” – it is whether you are comfortable letting two tax systems improvise the outcome for your child, or whether you want a plan that anticipates those clashes in advance.
If you are a U.S. expat parent and you are thinking about opening a Trump Account for your child, get bespoke advice before you fund it. Reach out and we can map out how Trump Accounts, 529 plans, and conventional portfolios fit together in your family’s specific cross‑border picture, so you are building your child’s future deliberately instead of leaving it to conflicting tax codes.
