Key facts
- Trump Accounts are available to all US children under 18.
- Babies born between 2025 and 2028 qualify for a $1,000 initial contribution.
- Contributions are capped at $5,000 per year per child.
- Funds must be invested in a low-cost index fund for long-term growth.
- Withdrawals are taxed, with a potential 10% penalty before age 59.5 unless used for specific purposes like education or a first home.
- Six million families had signed up before the scheme went live on July 4.
The launch of Trump Accounts, a new savings initiative aimed at encouraging investment among American children, has been met with a mixed reception. The White House presented the scheme with a ceremonial ringing of the Wall Street opening bell in the Oval Office, highlighting its goal to provide younger generations with a stake in the American economy.
The accounts are available nationwide for any US child under 18 with a Social Security number, accessible via a mobile app. Families, friends, and employers can contribute up to $5,000 annually per child. The funds are legally required to be invested in low-cost index funds for long-term growth. While growth is tax-free, withdrawals are subject to taxes and a potential 10% penalty if made before age 59.5, unless used for specific approved purposes such as higher education, purchasing a first home, or covering personal emergencies.
Proponents, including the White House, argue that Trump Accounts will offer millions of children exposure to stock ownership, which has historically been unevenly distributed, particularly among younger and lower-income families. Andy Blocker of Edward Jones sees the $1,000 contribution for babies born during Trump's second term as a crucial barrier-removal for starting savings.
However, critics like Will McBride of the Tax Foundation deem the scheme too complex, predicting it will primarily benefit well-informed and financially stable parents. Adam Michel from the Cato Institute acknowledges the admirable intent but suggests existing savings accounts might be more beneficial for many families. He also points to early withdrawal penalties and the potential for lower-income individuals to need funds at age 18, forcing them to incur penalties, a problem the scheme does not resolve.
Prior to its official launch on July 4, approximately six million families had signed up. The White House reported that over half a million accounts have already received the $1,000 subsidy for eligible babies. Trump Accounts projects that the initial $1,000 could grow to $6,000 by the time a child turns 18, even without further contributions, based on historical S&P 500 averages. With additional contributions, the potential value could reach $19,000 with $250 annually, or as high as $271,000 with the maximum $5,000 annual contribution. The initiative has garnered support from major entities like BlackRock, Visa, and Dell.