California Tax Treatment of “Trump Accounts”: What We Know So Far
- Viktoriya Barsukova, EA, MBA
- Jan 25
- 3 min read
Spidell has confirmed several important California tax implications related to the newly enacted “Trump accounts,” and the guidance is both technical and unsettled. Because the information is sensitive and evolving, this article summarizes the current understanding based strictly on California conformity rules and direct communication with the California Franchise Tax Board (FTB).
California conformity framework
California generally conforms to the Internal Revenue Code (IRC) as it existed on January 1, 2025. As a result, California does not generally conform to changes made by the One Big Beautiful Bill Act. While California does automatically conform to certain federal changes affecting retirement accounts, that conformity is limited and does not extend broadly to all new federal provisions.
This conformity framework has raised questions regarding how California will treat “Trump accounts,” which were enacted on July 1, 2025.
Federal definition of Trump accounts
Under federal law, Trump accounts are established pursuant to IRC Section 530A. That section provides that Trump accounts are treated as traditional IRA accounts under IRC Section 408(a), but with specific statutory modifications.
Despite this federal characterization, California’s conformity rules require separate analysis.
FTB position on California tax treatment
Spidell contacted the California Franchise Tax Board directly to confirm how California will treat Trump accounts and related contributions.
According to the FTB, because California does not conform to IRC Section 530A, Trump accounts will not be recognized as tax-deferred retirement accounts for California tax purposes. As a result, earnings within a Trump account will be taxable by California on an annual basis, rather than deferred until distribution.
Ownership and kiddie tax implications
Trump accounts are owned by the child, not by the parent or other guardian. In this respect, they are similar to Uniform Transfers to Minors Act (UTMA) accounts. Because the accounts belong to the child, the kiddie tax rules apply.
Employer contributions
California does not conform to the new IRC Section 128 exclusion that applies to employer contributions made to an employee’s Trump account established for the employee’s child or children.
According to the FTB, employer contributions to these accounts are taxable income to the employee for California purposes.
Contributions from tax-exempt entities and governments
California also does not conform to the IRC Section 139(j) exclusion from gross income for qualified contributions made by tax-exempt entities, such as charitable funds, or by state, local, or tribal governments.
Spidell asked the FTB whether these contributions might instead be treated as non-taxable gifts under IRC Section 102 or excluded under the general welfare doctrine. The FTB responded that it is not aware of any federal guidance that would expressly exclude these payments from gross income under either provision. Absent such guidance, the FTB stated that these payments would generally be considered income under California’s conformity to IRC Section 61.
Because these contributions are placed in the child’s Trump account, Spidell believes that, if taxable, the income should be treated as income to the child rather than to the account custodian. This issue remains unresolved.
$1,000 pilot contributions for children born 2025–2028
With respect to the $1,000 pilot contributions provided for children born between 2025 and 2028, the FTB stated that California would treat the contribution as gross income. Taxpayers would be required to make an adjustment to add back the contribution as income for California purposes.
However, because the contribution is deposited into the child’s Trump account, it remains unclear whether the taxable income should be reported by the parent or by the child. Regardless of who reports the income, if the $1,000 is taxable, it would create California basis in the account.
Overall California tax impact
Based on the FTB’s current position, California will:
Treat all contributions to a child’s Trump account as taxable, and
Tax all earnings in the account annually.
When the Trump account’s growth period ends, generally around the child’s 18th birthday, the account is automatically converted into a traditional IRA for federal purposes. At that point, the California basis in the account should equal the fair market value of the account at the end of the growth period.
Uncertainty and timing
Many of these issues remain unsettled, particularly regarding income attribution between parent and child. However, because these rules do not materially affect California tax returns until the 2026 filing season, tax professionals and the FTB will have additional time to clarify and refine the applicable treatment.
California Tax Treatment of “Trump Accounts”: What We Know So Far
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