Trump Accounts expand to stock donations. What are the benefits and risks?

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The Treasury Department said it automatically enrolled over 60 million children in Trump Accounts — and initiated a path for publicly traded companies to donate stock to the accounts.

The shift from the initially announced index-fund-only investment policy to allowing stock donations into the children's accounts was floated in July, before the accounts launched. The Internal Revenue Service released a rule on Sept. 30 establishing procedures for such donations.

In a pre-launch announcement, Treasury Secretary Scott Bessent said the stock donation option would make it "easier for philanthropists to help American children build long-term financial security." He added that by accepting contributions of publicly traded stock, "Treasury is creating a practical pathway for large-scale private giving to support the next generation."

What does this change mean for the long-term investment accounts designed especially for children?

How stock donations to Trump Accounts work

Under the new rule, companies or charities set up by stockholders can donate stock to Trump Accounts. This does not include a donation of highly appreciated stock from a relative or individual. The contributions must be distributed in "a qualified geographic area" to at least 5,000 accounts, and the stock must be held in the account, unsold, for five years.

SpaceX President Gwynne Shotwell wrote on X.com that she and her husband would give one share each to the Trump Accounts of more than 2 million children aged 11 to 17 in lower-income households, with "a bit more emphasis" on those living near their central Texas home.

Potential benefits of single-stock holdings

A single share of stock is unlikely to be a life-changing holding, but for a child — and over many years — it can serve as a valuable lesson.

"What excites me most isn't one free share of stock. It's putting millions of kids into the ownership economy early," David Perez, an enrolled agent and founder of Tax Maverick, told Yahoo Finance. "If that gets a child thinking about investing, compounding, and building wealth at 12 instead of 32, that's where this could have a much bigger impact."

The child learns about investing and, by owning even one share of stock, watches it grow over time, Perez added.

However, Adam Bergman, founder of IRA Financial, warns, "Headlines saying 'SpaceX is giving 2 million kids a share of stock' make it sound like a child opens an app and sees a SpaceX stock certificate sitting in their name. In reality, kids don't own direct shares, and their parents can't trade or vote them."

Instead, he says a massive block of shares is transferred directly to the Treasury Department, where it is placed in a collective trust fund. Each child's account is simply credited with a fractional slice of that trust's total dollar value.

Yet, Bergman adds that the accounts grow sheltered from taxes until the child turns 18, and "there are no annual capital gains taxes and no 'kiddie tax' eating away at returns."

Some tax professionals have raised concerns about bringing single-share stocks into a minor's portfolio.

"I do think this piece of the law is at odds with another provision of it: that the Trump Account funds must be invested in low-cost U.S. index funds," said Hannah Cole, an enrolled agent and founder of Sunlight Tax. "I think there's investor risk any time you have money you're relying on invested in a single stock."

Perez also said, "I wouldn't confuse receiving a donated stock with having a diversified investment strategy. Take the gift, but diversification still matters."

Parents who make annual contributions to the Trump Account can help a child understand investment diversification by showing that the account also holds diversified index funds. Cash contributions are invested in such low-cost funds.

Bergman raises the issue of the mandatory holding period.

"By law, the trust has to hold that stock for at least five years before it can be sold and rolled into safe index funds. If the market takes a dive during that window, neither the parents nor the kids have the power to sell or cut their losses," he said.

Jonathan Lee, a U.S. Bank wealth management advisor, notes that while cash contributions by parents and employers are limited to $5,000 per year, stock donations are uncapped.

"A child could, hypothetically, receive $10,000 of Company X stock and suddenly at least 67% of the minor's portfolio is concentrated in Company X," Lee said. "For reference, 10% allocations to any single company stock are generally considered a single-company, or concentration, risk. It goes back to the adage of not having too many eggs in one basket."

Also, under current rules, beneficiaries cannot refuse the stock donations. Lee said that limits a beneficiary's ability to decide whether an investment is attractive from a valuation or value standpoint.

"Perhaps a parent doesn't believe Company X stock has much upside from the price point at the time it was received," he noted, adding that a company might also misalign with a family's personal values.

Wealthy donors of such large equity contributions are holding highly appreciated stock, and steering those shares to children's accounts can be an attractive tax strategy.

"Instead of selling the stock, potentially creating a capital gain, and then giving away the cash, appreciated shares can potentially be donated while also generating a charitable deduction, assuming the requirements are met," Perez said.

Bergman said donors also derive public goodwill "without pulling millions of dollars out of their corporate or personal bank accounts. Connecting your brand to 2 million young families builds incredible loyalty."

Can I buy or donate stocks for my child's Trump Account?

No. Donations to the account by family, friends, or an employer can only be made in cash, which will be invested in index funds. Total contributions are limited to $5,000 per year. Contributions can be made using a debit card or via an ACH transfer. A code generated from the app can be shared with those who wish to contribute directly to the child's account.

How do I enroll my child in a Trump Account?

Download the Trump Account mobile app through the Apple App Store or Google Play, or log in to TrumpAccount.com to create and manage a child's account.

A Trump Account is essentially a tax-deferred Individual Retirement Account (IRA) for children. Funds in the account can be accessed without penalty only when the child reaches 18, and only for qualified expenses such as education or the purchase of a first home. Withdrawals are taxed as ordinary income.

All U.S. citizens under 18 with a valid Social Security number are eligible for a Trump Account (530A). Parents or legal guardians must open and manage the account for the minor beneficiaries.

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