The California Franchise Tax Board announced that it will refuse to treat newly created Trump Accounts as tax-deferred accounts for state tax purposes.
In doing so, California is purposefully making it difficult for families to fully utilize Trump Accounts.
As the San Francisco Chronicle notes, this is a major break from the state’s normal practice regarding retirement accounts:
“[California] does automatically conform to most laws relating to retirement accounts such as IRAs, 401(k) plans and pensions. However, the Franchise Tax board has determined that even though the Trump Accounts are defined as a new type of IRA, the state does not conform to the section of the federal tax code that created them.”
This means earnings from Trump Accounts will be taxed by California in the year they are realized, not deferred until distributed as intended. Savings accounts intended to help children save and invests for their future will now be taxed to fund California’s spending.
When asked, Gov. Gavin Newsom’s office refused to answer if Newsom would support a law overriding the Franchise Tax Board’s decision and conform with federal tax law.
If the Franchise Tax Board refuses to conform to the new federal tax rules, California families will now pay taxes on their children’s investment earnings.
Months after Congress created federally tax-advantaged Trump Accounts to help young Americans start building wealth, California is positioning itself to turn a relatively simple pro-growth reform into a compliance nightmare.
How Trump Accounts Work
Trump Accounts are a new type of child-focused retirement investment vehicle created as part of the One Big Beautiful Bill Act (OBBA), signed into law by President Donald Trump on July 4, 2025.
Parents can open a Trump Account for any child under the age of 18. Additionally, every American child born between Jan. 1, 2025 and Dec. 31, 2028 is eligible to receive a one-time $1,000 contribution from the Treasury Department that will be immediately invested in an index fund.
Parents are authorized to manage the accounts until the child reaches age 18, at which point the account converts into a traditional IRA. Employers, nonprofits, and family members can contribute up to $5,000 to each Trump Account each year, with the employer contribution portion capped at $2,500. There is no cap on contributions from nonprofits. There is also no cap on contributions from state, local or tribal governments.
Americans for Tax Reform is tracking the announcements of companies providing contributions to children’s Trump Accounts. You can find the full list here.
Trump Accounts allow savings for children to grow tax deferred. Unless they live in California.
California Taxes Trump Accounts
California’s Franchise Tax Board has determined that Trump Accounts will not be tax-deferred accounts for state tax purposes. This means that California would tax earnings every single year as they are realized.
Worse, employer contributions to Trump Accounts would also be taxed as income to the employee for state taxes purposes. This means parents will be stuck paying taxes on their employer’s contributions, as if it were income, even though they are not the ultimate beneficiary of the Trump Account.
As Sandy Weiner, California editor for the tax information publisher Spidell Publishing, warns in the San Francisco Chronicle:
“Because these accounts belong to the child and not the parent, Weiner said that “kiddie tax” rules would apply for California taxes—but not federal. The kiddie tax applies to income from a minor’s investment account. A certain amount of investment earnings each year is tax free, an additional amount is taxed at the child’s rate and anything over that is taxed at the parent’s rate.”
Increased Paperwork Burden for California Families
Because California refuses to comply with the federal treatment of Trump Accounts, families will have to deal with the headache of maintaining two separate tax records for the same account.
One set would track contributions, earnings, and basis under federal law; the other would track California’s annual state taxes so they can avoid double taxation when these funds are inevitably withdrawn.
As San Francisco certified public accountant Richard Pon explains:
“The child will technically owe state income tax on their account earnings each year. Younger children probably won’t have enough income to have to pay tax or file a tax return. But they should record the taxable contributions and income earned each year that added to their California basis in the account, which will reduce their state taxes when they withdraw the money, but only if they track it.”
California should conform state tax law to federal treatment. Anything less is a penalty on newborn savers; a toddler tax that punishes working families for participating in Trump Accounts.
California’s families and their children deserve better.
Rachel Loren is a tax policy communications specialist at Americans for Tax Reform.
Reprinted with permission from The Daily Signal by Rachel Loren.
The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.
Boy the state of California must be a very bad way to have to make kids pay taxes on what is set up to be delayed taxes. No wonder people are moving from California. However I don’t want them coming to my state.
The really sad part is our income-tax is taken by our Federal Government and given to the 11 Democratically Controlled Death Spiral States in the Billions of Dollars in the form of Welfare to keep them afloat .
This is another example of bureaucrats and their buracracies when they penalize ordinary citizens without representation. Until California dems are removed, there will be no end to this debacle. Evidently these idiots are exempt from the asinine decisions.
California (my former home state) is completely demented and evil to do this. They are totally unhinged in their hate.
This move to tax the Trump Accounts is just more proof the government of CA is unhinged.
I would love if they were sued for violating the civil rights of children.
California continues to show that it has effectively seceded from the Unión. They should receive no Federal funds of any kind until they return to following the U. S. Constitution in its entirety! That should also apply to any jurisdiction that is out of compliance with U. S. law!
I didn’t think the socialist in California could go any lower. Shameful!
Yet Commiefornians will continue to vote Commie.
When republican Steve Hilton is voted in as the new governor of California, this tax will be voided.
Not at all surprising.
Leave it to California. I hope that enough people see this and REMEMBER what Governor Newsom is permitting his state to do to children and their parents! What do you think he would do to the country if president!?!
And that Numbskull wants to run for president? Slippery eel should go into a cave and hibernate for 20 years!
Taxafornia. Trying to beat Taxatusis. California and Massachusetts are tax CRAZY. Soon people will be paying more taxes than they have income. Then what do the tax crazy idiots do?
First California spent itself into the hole, now is trying to tax itself out of it. Does not work that way, but keep on dreamin’ Califirnia
Just one more in the never-ending list of reasons to leave California. We left in 2013 after 25 years living happily there…
Children should not pay taxes of any kind. Taxation needs to be solely directed towards legal, self-responsible adults.
So typically of Newscum and the idiots in California the state with the most homeless. They are such greedy bastards and the people who elect these idiots should be outraged and vote these dopes out of office these people are communists.
You go newscum, how does that feel Californians, just what you voted for. So suckit up buttercup, enjoy your financial dwindling by your favorite elected officials. Keep putting them in office and by the time you retire you will be broke too like your state.
This is why Gavin Newsome should be in Prison.
Charged with Treason against The People of California. This is a disgrace,to The Good people of California. Not all of them are Bad!
quit moving out and take back your state!
This Governor and his minions are the absolute scum of the earth, even children are not immune to Socialists, over spending! What’s next ? Tax the children for being born !
More proof that the democrats running (and ruining) California are real pieces of SH*T.
NewSCUM will take money any way he can get it! Does CA make kids with lemonade stands pay sales tax? Just a thought! When [if ever] will at least SOME DIMMs wake up and throw these incompetent Commies out?
if the accounts were named Newsom Accounts this would not be an issue in CA. Some day the remaining sane people in CA will wake up and vote for common sense, before they all move out. I’m just saying.
I say stand back and watch how this plays out. It should be quite enlightening for those on the edge of socialism and conservatism. Isn’t there some way the union can revoke their statehood?
They need to secede. They don’t belong to the US anymore. Unbelievable, but people will continue to vote in democrats.
Leave it to the DAMNORATS to TAX EVERYTHING. Truly, EVERYTHING a DamniRAT touches turns to $H*T. This is just another example that penalizes, complicates things, creates unnecessary stress and frustration to everyone effected by their rules and policies.
When are people (voters) going to wake up and STOP voting for Democrats? The TAX and SPEND, SPEND and TAX, and then TAX SOME MORE
They are corrupt habitual liars and are truly America’s enemies within.
Does California tax the “earnings” kids get from lemonade stands?
If you really want to save for your child’s education a section 529 trust is a better vehicle.
Is California really California,or has it returned to the sick entity that is really kalifornicate,it is really a”past gas in the dark”thing.or does it want to be an AMERICAN state.I really feel for the normal people of California.
Anything to spite Trump.
ANYONE who would vote for any Damnocrap in CA (or in any other State) should be deported, or be committed to an insane asylum.
I think California is doing this for 2 reasons: just because it’s Trump and greed.
What a surprise. The Communist Left will steal from the mouth of Babies. Taxation without Representation anyone ?
California, like Madigascar did millenia ago, needs to break away from the U.S. and drift out into the Pacific and become a country on it’s on Merits, if it has any.
Could a California resident open an account in another state and therefore abide by that state’s laws?
NO we dont need this BS