Details of Public Law 119-21, section 70204 , One Big Beautiful Bill Act

This provision creates an individual retirement account, also known as a “Trump account”. A “Trump account” is defined as an individual retirement account (IRA) under IRC section 408(a) that is not designated as a Roth IRA and is for the benefit of an eligible individual or their beneficiaries. This provision defines an “eligible individual” as an individual (beneficiary) who has not turned 18 years before the end of the calendar year and who has a valid social security number (SSN). The account must be invested in an established mutual fund or stock exchange fund.

This provision does not allow a deduction for contributions made to the Trump Account before the first day of the calendar year that the eligible individual attains age 18. Contributions are limited to $5,000 per calendar year until the calendar year that the eligible individual turns 18 and a cost-of-living adjustment will be applied to that amount beginning after 2027. If the eligible individual dies before their 18th birthday, the account ceases to be a Trump Account and any person or estate of the beneficiary who acquires the account must include in their gross income the fair market value of the account assets (reduced by the investment in the contract) in the year of the death of the account beneficiary.

Distributions are allowed from Trump Accounts beginning January 1 of the calendar year that the individual turns 18 years old. Excess contributions to the account can be distributed before the eligible individual turns 18, are not included in the gross income of the eligible individual and that amount of net income that is attributable to the excess contribution is subject to 100 percent tax. Any withdrawals for nonqualified expenses are treated as ordinary income and subject to the income tax rate and a 10 percent early withdrawal penalty if distributions are taken before the calendar year in which the beneficiary turns 18 years old and not used for rollovers to qualified ABLE rollover contributions or a rollover of the entire balance of the account to another Trump Account for that same beneficiary.

This provision also allows an employer to make contributions, limited to $2,500, adjusted annually for inflation, per calendar year, on behalf of their employee who establishes an account on behalf of an eligible individual. These accounts are not treated as a simplified employee retirement account or SIMPLE account by the employer. The employer’s contribution amount is excluded from the employee’s gross income.

Contributions can also be made by tax-exempt organizations to an eligible individual’s account or account established for a qualified class of eligible individuals as general funding contributions, as defined. These contributions would not count toward the $5,000 contribution limit.

This provision also creates a pilot program where the federal government will deposit $1,000 into a Trump Account for those that make this election for eligible children born after December 31, 2024, and before January 1, 2029. These contributions would not count toward the $5,000 contribution limit. The $1,000 payment would not be subject to reduction or offset for past due support under the Social Security Act, debts owed to federal agencies, state income tax obligations, unemployment compensation debts, or assessed federal taxes subject to levy or collection. The eligible child must be a U.S. citizen and have an SSN. This provision will impose a penalty of $500 or $1,000, respectively, if the account is negligently or fraudulently established. An omission of the correct SSN on the return for the child, or taxpayer claiming the child, or taxpayer’s spouse, is treated as a math or clerical error.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC sections 402, 408, and 408A. However, California does not automatically conform to the Trump Account provisions under IRC section 530A that was added under Subchapter F.

California conforms, under the PITL, relating to items that are specifically excluded from gross income in RTC section 17131, as of the specified date of January 1, 2025. The federal $1,000 pilot contributions to Trump Accounts for children born in 2025 through 2028 are treated as a payment against the federal tax and provides a refund of that payment to the eligible child's Trump Account under IRC section 6434. California does not conform to IRC section 6434. However, under California's conformity to IRC section 61, the $1000 contribution would not be considered income.

Under the specified date of January 1, 2025, California does not conform to the exclusion for certain employer contributions to a Trump account.

Under the Administration of Franchise and Income Tax Law (AFITL), Franchise Tax Board treats specified errors identified on the return during processing as math errors, which includes not providing a valid identification number as required to claim a dependent exemption tax credit, earned income tax credit, young child tax credit, or foster youth tax credit. California does not conform to the definition of mathematical or clerical error under IRC section 6213. As a result, California does not conform to the changes made by this provision related to IRC section 6213.

California does not conform to the provision's penalty for a negligent or fraudulent election.

The estimated revenue impact to conform to the above federal provisions would result in the following loss:

26/27 27/28 28/29 29/30 ($1,000,000) ($900,000) ($1,600,000) ($3,000,000)