US Treasury Sets Ground Rules for Trump Account Investments

The US Treasury Department on Thursday finalized the operating rules for the child savings accounts established under last year's tax legislation, commonly referred to as Trump accounts. The new guidelines strictly define where the money can go, aiming to align investments with the law's intent while keeping costs in check.

Permissible Investments: A Narrow Lane

The core mandate is clear: account funds may only be invested in equity funds that meet two specific criteria:

  • Index-Tracking: The fund must follow a passive, index-based strategy, ruling out actively managed funds.
  • US-Focused: The fund's assets must be primarily invested in stocks of domestic American companies, emphasizing support for the U.S. economy.

Additionally, the Treasury imposed a cap on annual fund management fees at 0.1% of account assets. This low ceiling is designed to minimize costs for beneficiaries over the long term.

What's Out and What's Under Review

The rules also draw bright lines. ESG (Environmental, Social, and Governance) thematic funds are explicitly prohibited from qualifying. The Treasury categorizes them as "sector funds," arguing their focused strategy contradicts the requirement for broad-based investment exposure.

A key area left open involves fees. Custodial account service fees are not subject to the 0.1% cap. Recognizing potential concerns, the Treasury is soliciting public comment on whether to limit or even ban such fees in the future.

Potential Future Flexibility

Alongside restrictions, the Treasury is exploring avenues for expansion. It has requested public input on a proposal to allow donations of appreciated stock into these accounts. If implemented, this could create new funding and tax-planning opportunities, though specific mechanics would need further development.

These regulations establish a foundational framework of "low-cost, passive, and America-focused" investing for Trump accounts, providing clarity while leaving room for debate on certain operational details.