More than 60 million children auto-enrolled in Trump accounts; stock-donation proposal out for comment

The Trump administration announced on Oct. 7 the auto-enrollment of more than 60 million children in Section 530A accounts, or Trump accounts, bringing the total number of accounts to nearly 70 million, Financial Planning reported. About 7 million children had accounts before the automatic enrollment, according to a Treasury official cited in the report.

The mechanics differ from what advisors are used to in retirement plans. Auto-enrollment creates accounts for children under 18 with valid Social Security numbers without a parent or guardian opening one first, but parents must claim the accounts to manage them and to allow qualifying contributions. Children gain access at 18. In a defined contribution plan such as a 401(k), what happens automatically is the contribution, not the account, the report notes; in these accounts, the account itself is the automatic piece. Both approaches aim to prompt saving.

Advisors told the publication the changes could create new planning conversations about saving for children and charitable giving, even as key details of the accounts remain in flux.

"For people that are just not into this stuff or don't even know about it, at least … the kids will have an account automatically enrolled," said Adam Bergman, founder of Sioux Falls, South Dakota-based IRA Financial, which specializes in self-directed retirement accounts.

AJ Kletkin, a New York City-based private wealth advisor at Private Advisor Group, said automatic enrollment will encourage saving, and pointed to time and participation as the biggest benefits. "Automatic enrolling gets more people invested earlier, and when you're talking about children, that potentially creates decades of additional compounding," he said.

Regulators are seeking public comment on a proposal that would let donors contribute individual stock to groups of at least 5,000 children in a qualified state or geographic area. The report characterizes that as an unusual new charitable-giving option.

Currently, certain low-cost index funds are the investment options in the accounts, according to the report. For a client meeting today, the concrete step is the claim: a parent or guardian has to claim the account to manage it and to allow qualifying contributions.