Starting in 2025, every American newborn will receive a $1,000 government-funded investment account. The Trump administration has
Dubbed “Trump accounts,” the program is a key part of the latest Republican
Parents will be able to open one for any child under the age of 18, though those accounts will not be eligible for the $1,000 seed money. Annual contributions are capped at $5,000, including up to $2,500 in potential tax-free employer contributions. In a show of support last month, Dell Technologies CEO Michael Dell said his company would
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Funds in the account can only be invested in
Withdrawals for approved purposes are taxed at the long-term capital gains rate, while nonqualified uses are taxed as ordinary income and may be subject to an additional 10% early withdrawal penalty.
A mixed reception among tax and finance experts
Organizations like the nonprofit, nonpartisan Tax Foundation have been skeptical about how the new account fits into the landscape of existing options for parents.
“The tax code provides for at least 11 tax-advantaged savings vehicles, each with different rules, limitations and regulations,” analysts at the
A Trump account will provide less generous tax advantages than other popular vehicles, like the
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“We’re getting a lot of questions about it, especially from some of our clients in that family-starting age, like late 20s to 40s,” said Matthew Theal, a financial advisor at Evermont Wealth in Claremont, California. “But yeah, to me, I still think long term a 529 [plan] probably wins out if you’re using it specifically for college, and then you want it for retirement in the future down the line.”
If education or retirement savings is the goal, traditional 529s and
“All in all, this has great potential to be a component to the financial security of our children,” Fratarcangeli said. “It is another piece of the puzzle, and even on a standalone basis, the growth potential can provide capital formation to many that may have no other avenues.”
Is just starting enough?
In terms of tax-advantaged growth, the Trump account falls short of other established savings accounts already available to parents. But for people like Zach Buchwald, CEO of Russell Investments, the account still represents a “big cultural shift” for American families, thanks in no small part to its $1,000 seed.
The average parents, by default, don’t think about investing for their children, Buchwald said. But a funded investment account could change that.
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“They create a baseline expectation: Every kid starts with something in the market,” Buchwald said. “That’s a big cultural shift. And by expanding eligibility to include employer and nonprofit contributions, it opens up a lot more opportunities that many families haven’t had access to before.”
Still, whether or not parents will choose to contribute their own money to a Trump account over a 529 or other established account remains an open question, according to Theal.
“I would imagine a lot of people are kind of wary about the accounts,” Theal said. “They’ll take the free $1,000, right? I mean, that’s amazing. But the annual contribution of $5,000, you know, I’m just not sure.”
“I don’t know if families are actually going to make that annual $5,000 contribution, or if they’re going to be, you know, wary or nervous about it, since it is a government-funded program,” he added. “We’ve already seen a lot of negatives over the last 30 years with Social Security, how it’s eventually going to run out, and a lot of people don’t trust that system.”
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