Key facts
- Companies can now gift individual stocks to children's Trump Accounts.
- Gifted stocks cannot be declined or sold for five years or until the child turns 18.
- Donations must come from tax-exempt nonprofits, private foundations, or donor-advised funds.
- The Treasury Department must approve all stock donations.
- Donated stocks must be of American companies.
- The Treasury Department is still accepting comments on the rule changes, which expire in 2029.
The U.S. Treasury Department has introduced a new rule allowing companies and other donors to gift individual stocks to children's Trump Accounts, a program launched over the summer. This development shifts the nature of the accounts from a simple, diversified investment vehicle to one that could expose children to single-stock risk, as gifted shares cannot be sold for five years or until the child turns 18.
Gene Goldman, chief investment officer at Cetera Investment Management, expressed concern that this change alters the program's character, potentially leaving children with concentrated stock exposure. However, he also acknowledged the upside of receiving company stock at no cost, with the potential for decades of tax-deferred growth.
Donations can only be made through tax-exempt nonprofits, private foundations, or donor-advised funds and must be approved by the Treasury Department. These stocks must be from American companies. Experts suggest that such donations will likely be rare, primarily benefiting high-net-worth donors with large, low-basis stock positions.
Once gifted, the stocks operate similarly to a traditional IRA, appreciating in value with no immediate tax implications. However, the inability to sell or decline the stock presents challenges, particularly for parents in industries with strict stock ownership rules. Tim Steffen, a financial planning expert, anticipates that employers will need to create exceptions for these accounts due to the lack of control over allocations.
The rules, which are temporary and set to expire in 2029, are still subject to change as the Treasury Department considers public comments. This departure from the original intent of holding diversified, low-cost index funds has raised questions about the program's long-term structure and implications.