Bart Quoted on Applying Gift Taxes to Trump Account Contributions

Susan said that funding a 529 account for a child provides better tax advantages to the extent the beneficiary can use the 529 funds for education, including vocational education, but once the 529 account has sufficient assets a Trump account may provide an opportunity to start funding an IRA for the beneficiary. 

“The best financial argument is if you fully funded your 529, you make contributions to a Trump Account, and then when the beneficiary is an adult but no longer being taxed at the parent’s rate, you convert to a Roth,” Susan said. 

Susan added that there are some inequities in how the Internal Revenue Service (IRS) treats certain Trump contributions. The IRS has clarified that only some contributions will be considered a gift of present interest and thus qualify for the gift tax annual exclusion. However, taxpayers who have made additional gifts to the beneficiary outside of the Trump account, or who split gifts between spouses, or who have made aggregate gifts that have exceeded the lifetime gifting limit may not qualify for the gift tax annual exclusion and may still have to file a gift tax return.

“This inequitable treatment of taxpayers will require a legislative amendment to fix,” she said. “Form 709 is complicated and not a form that anyone should DIY. Even non-estate planning attorneys who try to do it on their own end up asking me to prepare it for them.”

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