The White House is out with its new Trump accounts, a key component of the One Big Beautiful Bill passed on July 4 last year. In it, the accounts will be made available to all U.S. citizens under 18, each of whom will receive an initial deposit of $1,000 from the federal government. Parents will also be eligible to add $5,000 annually to the accounts.
The private sector is getting on board. Dell Computers founder Michael Dell, along with his wife Susan, just pledged $6.25 billion to seed “Trump Accounts” for children 10 and under. The Dell contribution is intended for children born before January 2025, under age 10, and living in zip codes with a median income of $150,000 or less.
“That’s one of the largest private investments in American kids in history,” Dave Fortin, founder at FutureMoney, a micro-investing platform, told NTD.
While those are the headline takeaways from the Trump account release, US families should be aware of multiple ‘under the radar’ plan benefits that could help them optimize their Trump account experiences.
These factors are at the top of the list.
Baby’s First Portfolio
Under the White House plan, over 25 million American children will get $250 invested on their behalf on America’s 250th birthday. Any child born after Dec. 31, 2024, and before Jan. 29, 2025, will get the full $1,000 federal government contribution.“For many children, it will be the first time they see their name on an actual investment account, giving them a sense of ownership over their financial future,” Fortin said.
The account is not meant to comprise an entire investment portfolio
Structured to support major milestones such as education, buying a first home, or starting a business, a Trump account can help children get off to a good start on a lifetime investment. Yet there are clear limits.
“Even with its limitations (taxes on withdrawal, restricted timelines), it’s still a strong nudge in the right direction,” Fortin noted. “However, to build generational wealth, a Trump account shouldn't be your only investment.”
Primarily, that’s because the account is tax-deferred, not tax-free. “Withdrawals at 18-31 are taxed at long-term capital gains,” Fortin said. “You’re forced to empty it by 31, which means zero tax advantage on the next 30 years of compounding. After 31, future gains start getting reduced by taxes. While it’s an incredible head start, you need an additional layer of compounding to take it further.”
The accounts start appreciating right away
The Trump account’s $1,000 contribution is considered “free money” that parents can primarily use at their discretion, as long as it benefits the child.
“The $1,000 specifically is designed for their children’s education and a few other types of expenses such as starting a new business, purchasing a new home (up to $10,000) and birth or adoption of their own child (up to $5,000,” Setu Shah, founder at Financial Doula, a coaching and education platform dedicated to helping new parents financially prepare for parenthood, told NTD.
The largest benefit is the ability for the account to have compound growth in the stock market. “Assuming an 8% interest rate, the beneficiary could have $4,000 by age 18, and up to $50,000 if an additional $200 is contributed monthly; or $190,000 if the max of $5,000 is contributed per year,” Shah said.
Pros and Cons
The primary pros of Trump accounts include the following:--- They start with “free money” from the federal government, “so families require no initial amount to start the account,” Shad said.
--- If employers contribute, they will receive tax breaks for contributions.
--- Funds in the accounts will grow tax-deferred (i.e., gains won’t be taxed annually). “Currently, there is minimal hassle involved, such as needing to maintain receipts for educational expenses,” Shah added.
The main cons of the Trump account include the following:
--- Qualified withdrawals are limited to education and a few select purposes. “That leaves little wiggle room if needed for other purposes,” Shah added.
--- The funds cannot be touched until the age of 18. “That leaves fewer options if needed earlier,” Shah said.
--- Withdrawals are taxed regardless of whether or not they are qualified.
What parents should take away from the new Trump Accounts
While parents will likely appreciate getting free cash from Uncle Sam, they should put guardrails in place to protect their family investment and leave room for other investment options.
“Maximizing the contribution amount ($5,000 per year) is a good way to ensure the account can grow to the highest amount due to compound growth benefits,” Shah said. “That said, other types of investment accounts for children tend to fare better and offer more flexibility to parents and beneficiaries.”
For example, 529 accounts, original education investment accounts for kids, can be used before the age of 18, earnings can be withdrawn tax-free, up to $35,000 can be rolled over to a Roth IRA, and more. “Roth IRAs also offer more flexibility, such as higher contribution limits and tax-free withdrawals for any purpose,” Shah said.
Consequently, while generally considered a good thing, Trump accounts may not be the best option for maximizing growth or maintaining flexibility.
“Trump accounts can mainly benefit two groups of people,” Shah added. “Low-income families, who probably wouldn’t have opened an account on their own and whose kids can benefit from investments early, and very high-income families. Those are families who can supplement their already existing portfolio of investment accounts with a Trump account.”
The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.