By Rob Nikolewski
The San Diego Union-Tribune
(TNS)
The U.S. Treasury just launched what’s been dubbed Trump Accounts—an investment savings tool for children under 18.
Similar to an IRA, the tax-deferred program allows parents, guardians, grandparents and others to contribute up to $5,000 per year until a child turns 18. Babies born between Jan. 1, 2025, through Dec. 31, 2028, can also receive a free $1,000 deposit in seed money from the federal government.
Based on historical S&P averages, Treasury estimates that even with no contributions, individual accounts can grow to $6,000 by age 18, and contributions of just $250 per year leads to a portfolio worth $19,000 at age of 18.
Among its aims, the program hopes to attract families who have historically not participated in the stock market to take advantage of savings and investment opportunities, give children a financial head-start and reduce the wealth gap between haves and have-nots.
Question: Will the Trump Accounts ultimately make a significant difference in the lives of young people whose families enroll in the program?
Economists
David Ely, San Diego State University
YES: Some young people will experience significant benefits, certainly those who receive a $1,000 deposit from the federal government or contributions from employers or philanthropic organizations. Those who start building wealth as children through Trump Accounts will be far better prepared to enter retirement than if they waited longer to begin to invest. However, those forgoing other tax-advantaged vehicles like 529 plans to invest in Trump Accounts will probably not be any better off.
Ray Major, economist
YES: The plan could make a significant difference to many young people. Consider the 529 plan that allows parents to put away money tax-free for a child’s education, many kids could not have gone to college without that program. Similarly this program would help give kids that critical first financial step toward independence. Any plan that encourages savings and is invested in the open market will ultimately be beneficial to the average person.
Caroline Freund, UC San Diego School of Global Policy and Strategy
NO: Good idea, bad design. The children who would benefit most from these accounts are least likely to be signed up early. A $1,000 deposit is potentially transformative for a baby born poor, marginal for one born wealthy. But you have to be financially literate and file taxes to know about the program. And because the accounts are partly funded by cuts to other social programs, they risk transferring resources from the neediest families to the ones who need them least.
Kelly Cunningham, San Diego Institute for Economic Research
YES: The account teaches young people the advantages and value of personal savings and investment over time. Like IRA accounts parents can already set up for their children, the government’s contribution of $1,000 per baby alone makes the account valuable. Even if no more is added into the account, it will grow tax-deferred just like a traditional IRA sitting for decades until the child turns 18. Additional contributions into the account make it even more worthwhile.
Alan Gin, University of San Diego
NO: Adjusted for inflation, $1,000 invested in the S&P 500 will grow to about $100,000 in 67 years, based on historical returns. That’s better than nothing, but still not enough for retirement. A second problem is that there is less awareness of the program among low-income households. Another issue is that young people may be tempted to withdraw funds at age 18. Finally, the biggest beneficiaries will be high income households who can add up to $5,000 a year to the accounts.
James Hamilton, UC San Diego
NO: With tax-free compounding, the $1,000 government contribution could grow into a significant sum after a few decades. But the government got that $1,000 by borrowing, and the interest on that debt will also compound. The return on stocks should exceed the interest on the debt. But if your child is successful, they will end up owing taxes to pay back not just their own debt but also somebody else’s. Your child would probably be richer if the government hadn’t contributed $1,000.
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Executives
Austin Neudecker, Weave Growth
YES: Saving early will turn modest contributions into meaningful assets and, equally important, introduce families to investing and compound growth. The $1,000 seed will not transform a child’s prospects, and families with more disposable income will benefit disproportionately. Regardless, removing the barrier of opening an account and creating a habit of investing can improve financial literacy and long-term security. These accounts will not close the wealth gap, but should help participating children.
Chris Van Gorder, Scripps Health
YES: These 530A accounts will give eligible children a head start on savings. That could be huge for many families who might not be able to afford to invest. While they are not very flexible and have limited investment choices, the accounts do encourage investing and long-term savings. Besides, for those with eligible children born between 2025 and 2028, it would be hard to justify turning down the free $1,000 in seed money from the federal government.
Jamie Moraga, Franklin Revere
YES: It can make a difference, but it’s a long game. It gives families an option to set up a retirement account for a child who might not otherwisestart one. Friends, family and employers can contribute over time, and the account can also convert to an IRA at age 18. Unlike a 529 plan, early withdrawals before a certain age are taxable. But if left untouched and allowed to grow over time, it could create value for someone who may not have saved otherwise.
Mark Kersey, San Diego County Taxpayers Association
YES: The opportunity to tax-defer investments with $1,000 of free seed capital is too good to pass up. Ideally family members will contribute on a regular basis and grow that initial deposit to potentially tens of thousands of dollars. Branding aside, putting kids of all income levels on a more even playing field is a worthy goal and families should take advantage of this opportunity.
Phil Blair, Manpower
NO: I will be surprised if new administrations coming in over the years will continue to fund this initiative. It feels very pandering to voters right before midterm elections and with the country facing huge deficits.
Gary London, London Group Realty Advisors
YES: The program will be particularly beneficial to middle-income families, many of whom are squeezed in the current economic environment and do not save. If they maximize the allotted contribution from birth for 18 years, they will have contributed $90,000, the government contributed $1,000, and roughly $76,000 would be investment growth, assuming a steady 6% return (they will be taxed on the growth portion). This $167,000 might almost be enough to cover four years at SDSU!
Bob Rauch, R.A. Rauch & Associates
YES: For families who’ve never invested before, Trump Accounts remove the biggest barrier: knowing where to start. The $1,000 government seed money means a child’s account begins growing in the market from birth, without parents needing savings, brokerage knowledge or upfront cash. Combined with tax-deferred compounding over 18 years, even modest additional contributions could meaningfully add up. This would give these young people a financial head start their families couldn’t have provided on their own.
Photo credit: The White House/YouTube
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Tags: children, investment accounts, Payroll, Taxes, Trump Accounts
