The Trump CleanClimate Act’s Tax-Free Savings Account Plan
The One Big Beautiful Bill Act introduced the Trump Accounts, a tax-free savings plan targeting baby born on January 1, 2025, through December 31, 2028. According to a Forbes article, these accounts allow parents to invest $1,000 for a baby’s growth while tax deductions for future contributions are provided. The plan’s $80,000 potential offer tax-deferred growth to those purchasing the baby, providing long-term financial support.
The plan hinges on three critical tax considerations:
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Growth Tax-Deferred Management: Investors hold these accounts tax-deferred. Stock prices fluctuate continuously, with gains recognized on sale and losses offset on purchase, reducing the immediate impact of inflation. The investment grows tax-deferred, allowing parents to withdraw funds and avoid current taxes until a baby turns 18, ensuring long-term tax savings.
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Tax Treatment of Gains: Depending on the activity covered (qualified or non-qualified), the gains may be taxed as capital gains at 0% (for income below $48,350) or as ordinary income at 10%. Lower-income households, including those with low earning caps like the Silent Family Standard, benefit more from these taxes, while higher-income families enjoy a larger tax benefit through preferential capital gains treatment.
- Progressive Nature of the Plan: despite offering a universal benefit, the plan is regressive. Higher-income families can derive greater tax savings due to larger income tax benefits from the fund. Higher earners pay a 37% tax on gains forortified accounts compared to 12% for lower earners in some cases, with married individuals benefiting more on preferential capital gains focuses.
