Be Careful Before Opening Trump Accounts: The Hidden “Who Can Open It” Trap

Protecting and Preserving Wealth – Grandparents, Be Careful Before Opening Trump Accounts

Speakers: Bruce Hosler, Jason Hosler, Alex Koury, & Jon Gay

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Jon Gay (00:05):

Welcome back to Protecting and Preserving Wealth. I am Jon Gay, I am joined as always by Bruce Hosler, Jason Hosler, and Alex Koury of Hosler Wealth Management. Gentlemen, always a pleasure to be with you.

Bruce Hosler (00:15):

Jon, it’s great to be with you again. Thank you.

Jason Hosler (00:17):

Good to see you, Jon.

Alex Koury (00:18):

Hey, Jon.

Jon Gay (00:19):

So, today, we’re talking about these new Trump accounts. So Bruce, as the grandfather in the group (I’m going to assume that you’re the sole grandfather in the group- no offense), we want to dig into these Trump accounts today and what you found out looking into them a little bit more. Where do you want to start?

Bruce Hosler (00:34):

Well, number one is I think they are great. How fantastic to have a baby, 10 or 12 years later for the child to find out, hey, they’re a stock guru and they’re investing in the stock market. We’re going to have a whole new generation of capitalists. I think this is fantastic because they will also be more financially educated and financially astute by the time they come into their young adulthood. So, they’re great.

However, however, there’s some new information we’re finding out about them. Now, people have been able to go online and apply for them, but technically you can’t really open the accounts up until after July 4th of this year, 2026.

Now, grandparents will be able to make a contribution which is what I’m excited for, but some of us grandparents are kind of control freaks and we want to like open the accounts ourselves for our grandchildren, and the law comes out and it says that we probably cannot do that. And if we try and do that, that we may be perjuring ourselves on the form if we open it up and actually sign the form. And so, I don’t want any of our listeners to do that.

Now, Alex, the proposed regulations say that there can only be one Trump account per child. And the regulations set out there’s two main rules on who can establish these accounts. Let’s go through the first one.

So, since January of 2025, if a grandchild was born, who can open those accounts, Alex?

Alex Koury (02:17):

Primarily, the parents are the ones that should be opening up the account, or the legal guardian, is really what it comes down to. But typically, we’ll just say in this example, it’s going to be the parents. Now, with that being said, the grandparent can still make a contribution to that account up to $1,000 really to claim the federal government contribution if the grandchild is a dependent of the grandparents.

Bruce Hosler (02:43):

So, in that rare case where the grandparent is the guardian, they’re the ones that can open the account, but only in those cases. So, most of us grandparents, we’re not the guardian, the child’s not our dependent, they’re not living in our household, so we don’t have the authority to do that.

Now, if the grandchild was born before January 1st of 2025, Jason, a grandparent is the last one in line after a legal guardian or a parent or other adult, so grandparents can’t legally establish these accounts for their older grandchildren that are still under 18, but what are some of the nuances there that we need to be concerned with regarding this penalty of perjury if the grandparents are trying to get involved there?

Jason Hosler (03:30):

So, just like with IRAs, it looks like these are going to have several rules that you have to follow and this order that they’ve laid out, legal guardian, parent, adult, sibling, then grandparents. So, grandparents being last in line after all of these other relations to the child, you just have to make sure with these accounts that you’re going to be checking the rules, following those rules and not just being in a hurry to jump to it.

So, that penalty of perjury applies to someone who opens an account when there’s no other person with a higher authority. So, that higher authority is that order that they’re laying out for these accounts.

Jon Gay (04:13):

It’s like a pecking order of who can open them.

Bruce Hosler (04:15):

And it’s kind of deceiving, Jon, because you can go to the website or you can fill out this form 4547, which is the new form, and it only requires the grandparent opening the account to declare under penalty of perjury that he has examined the form and to the best of my knowledge and belief, it is true, correct, and complete.

There’s nothing on the form of the website warning the grandparent that making this election for children that are born before 2025, that they’re representing to the IRS, that there’s no other person with higher authority available. So, that’s where they potentially can get into trouble.

Now, for these reasons, we need to make sure that the guidance from the IRS comes out clear to the parents or the grandparents or whoever’s able to open these accounts before we wade in and do that.

Now, we’re very excited about Trump accounts. We want our clients to open them or have the parents open them and the grandparents to be able to contribute. And of course, that’s going to be $5,000 a year. That’s going to add up to a lot of money for children by the time they’re 18 and to do that now.

Alex, we have a kind of a closing paragraph here that talks about to reiterate, you want to review those rules with our listeners just for a minute here.

Alex Koury (05:35):

Let’s do that here. So, again, if your grandchild was born since or so on or after January 1st of 2025, the grandparent cannot make the election to claim the $1,000 federal government contribution and elect to open the Trump account at the same time unless the grandchild is a dependent of the grandparents. So, if you’re legally the guardian of the grandchild, then yes, you can make this election and open up the account but if you’re not, you cannot do this.

Bruce Hosler (06:08):

So, Jason, what about those children that were born before 2025?

Jason Hosler (06:13):

So, those that were born before January 1st, 2025, and that’s going to account for most of the grandchildren of our listeners, of course, those grandchildren, if they have a parent or a legal guardian or an adult sibling, then the grandparent is not legally authorized to establish the account. So, it’s only after those three higher priority categories have been exhausted can a grandparent open a Trump account for their grandchild.

Bruce Hosler (06:40):

So, the message that I have for our listeners today is if you’re a grandparent and you want to help your grandchild, encourage your children (that are the parents of your grandchildren) to open these accounts after July 4th, and then your job is to write the check or to pay the money to put the $5,000 in there for 2026 to get it started.

Now, let’s just go over some of the investment choices. Primarily, they’re talking about larger indexes of stocks. So, for example, the S&P 500 or maybe the NASDAQ 100, and some of those different indexes could have very different performance. And so, maybe you want to be selective on where those accounts are being funded to, where that money’s going. As we get more information on these Trump accounts, we want to bring it to you.

But I wanted to bring this to your attention because these regulations just came out the end of April, and I had not seen anything like this before, and we don’t want our clients perjuring themselves by signing the form or opening the account.

Jon Gay (07:46):

A minute ago, Bruce, you said that the grandparent’s job, assuming the parent opens the account, is to write the check. I would assume, as the grandfather in the room, that that’s a general rule, is grandparent’s job is to write the check, right?

Bruce Hosler (07:57):

Yeah. You know, we’re always helping the children and the grandchildren-

Jon Gay (08:00):

No offense, Jason.

Jason Hosler (08:01):

No, not at all. But the other thing is, and we’ve seen this with our clients and in our own family too, we’ve had people asking about these Trump accounts because it’s big news. Michael Dell came out and said that he was going to do contributions to all the Trump accounts for all the children across the country.

So, because of this news, there’s a lot of conversation around that. So, I think the other thing that grandparents can take away, use this as an opportunity to talk, to teach, to investigate how the family handles finances, how you communicate about your financial future as a family across generations, and to pass those lessons on. It’s a perfect opportunity for those moments.

Jon Gay (08:37):

I’m really glad you said that, Jason. In the beginning of this podcast, I was thinking about what Bruce said, where you’re creating wealth for these kids that were born fairly recently, and it’s good because high school and middle school typically don’t educate on financial spending. But the point you just made, Jason, is certainly well-taken because a lot of families don’t talk between generations about financial planning.

So, that is so huge, and that is an opportunity that should not be missed, given this topic that we’re talking about today. And if you need help financially talking about this, planning for your family, that’s what Hosler Wealth Management does regarding anything in your financial future.

Bruce Hosler (09:18):

Well, and Jon, kind of as a closing note, the thing that I want to bring to everyone’s attention is this, the opportunity.

As the author of Moving to Tax-Free, and as Hosler Wealth Management focuses on minimizing taxes for our clients, I want you to imagine you have a child, one, two, three, four, five, six, seven, whatever, and you start funding that $5,000 a year, and it starts growing with market rates of return of, let’s say, average of around 10% a year because it’s all in the stock market.

And when that child turns 18, this account is now kind of turned over into a traditional IRA. Imagine the possibilities for a child that doesn’t have any income at 18, 19 or 20, converting that entire account to a Roth IRA, and now letting that grow the rest of their life.

Not touching it, just considering that to be the sacred money they have, and by the time they get to retirement, that is going to be a significant amount of tax-free money. Folks, that is the tax move that we want people to understand that these Trump accounts provide.

Jon Gay (10:32):

We’ve talked about Roth IRA conversions in previous episodes, I’ve got to imagine when you’re 18 and you’re bagging groceries or delivering for Uber or whatever your gig is, that’s probably one of the lowest tax brackets you’re going to be in in your entire life.

Bruce Hosler (10:45):

Right, right, that’s opportunity. The hard thing, though, is, Alex, how are we going to keep these kids from getting their hands on that account or persuade them not to touch it and treat it as sacred money?

Alex Koury (10:58):

Well, the primary thing, and this is the great part about the Trump accounts in general, is that, again, it’s an account that’s defined as a retirement account. So, you put those words in a child’s mind or an adult’s mind, whatever it is, we don’t touch that money. Now, it’s different from a savings account or a checking account, whatever those things are.

So, if you can start to help compartmentalize these things for a child and understand that we don’t touch this, and you can demonstrate the long-term growth factors of what this could look like when you turn 65, I think people are a lot more excited about that as opposed to, well, it’s just a little bit of money, does it mean a whole lot? It can mean a whole lot. And that’s what we need to communicate across legacies and generations. These are big deals of working with money and growing it now.

Jon Gay (11:43):

Compound interest, Einstein called it the eighth wonder of the world, right?

Bruce Hosler (11:46):

Absolutely.

Jon Gay (11:47):

And I like that phrase of a retirement account as opposed to the smashing the piggy bank for the sports car or the video game system or whatever. I’m stereotyping 18-year-olds here, but whatever I would have bought when I was 18.

Alright, if our listeners and viewers want to talk to the team at Hosler Wealth Management about this evolving Trump accounts or anything related to their financial future, what are the best ways to reach you?

Bruce Hosler (12:09):

Jason, how do they get you in Prescott?

Jason Hosler (12:11):

Give us a call at (928)-778-7666 in Prescott.

Bruce Hosler (12:16):

Alex, how about in Scottsdale?

Alex Koury (12:18s):

Yep. (480)-994-7342.

Bruce Hosler (12:22):

And of course, on the website folks, hoslerwm.com.

Jon Gay (12:26):

Really good information as always today, gentlemen. We’ll talk again in a couple of weeks.

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Bruce Hosler (12:29):

Thank you, Jon.

Jason Hosler (12:30):

Talk to you soon.

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Disclosure: (12:56):

Investment advisory services are offered through Mutual Advisors LLC, DBA Hosler Wealth Management, a SEC registered investment advisor. Securities are offered through Mutual Securities, Inc., a member FINRA/SIPC. Mutual Advisors, LLC and Mutual Securities, Inc. (collectively Mutual Group) are affiliated companies.

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