The U.S. Treasury and IRS have issued new regulations detailing eligible investments for Trump Accounts, which are tax-deferred savings accounts for minors outlined in the Working Families Tax Cuts law. Key components include:
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Eligibility Criteria: Only mutual funds and ETFs that track approved indices, avoid leverage, and maintain fees below 0.1% are eligible. Active management strategies that attempt to outperform a benchmark will not qualify.
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Exclusions: Funds that utilize ESG (Environmental, Social, and Governance) criteria are explicitly disqualified, as they are likened to sector-specific funds which do not meet eligibility requirements.
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Fee Structure: The 0.1% cap encompasses fund-level fees and operating costs but does not include separate trustee administration charges.
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Default Investment Designation: Trustees must choose a default eligible investment for any uninvested contributions and conduct annual eligibility reviews of the funds. If a fund becomes ineligible, trustees have 30 days to divest and reinvest in a qualifying option.
These guidelines aim to enhance transparency and encourage investment in low-cost funds for children, potentially impacting 85 million minors across 44 million families. A public comment period is open until October 20 for feedback on these changes.
