Trump Accounts Can Give Kids a Head Start in Life, But the Government's $1,000 Contribution Isn't Why
The government will add $1,000 to Trump Accounts for eligible children, but families who make regular contributions and use them as a learning opportunity can benefit most.
A new savings vehicle aimed at helping the youngest Americans get a financial head start is now available.
Created under the One Big Beautiful Bill Act, Trump Accounts are available for any eligible child under 18 with a Social Security number. Once the account is opened, parents, relatives, even employers can contribute up to $5,000 per year per child until the age of 18.
Designed to serve as a long-term investment account, the funds can be used for education, the first-time purchase of a home or even retirement. To encourage parents to open an account for their child, children born between January 1, 2025, and December 31, 2028, are eligible to receive a one-time $1,000 contribution from the government.
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While the seed money is certainly helpful, Trump Accounts offer families something even more valuable: The power of time.
Trump Accounts and the power of compound growth
When it comes to long-term investing, the length of time those dollars stay in the market can have a greater impact than the amount of money initially invested. That's because investment returns have the ability to generate returns of their own, also known as compound growth. Over time, this compounding effect can allow modest contributions to grow significantly.
So while the initial $1,000 contribution from the government may not seem like much on its own, leaving that money untouched in the account allows it to grow in ways that wouldn't be possible if investing began later in adulthood.
While returns are never guaranteed, the Rule of 72 estimates that investments earning around 7.2% annually will double every 10 years. This means a child who begins investing at birth has a significant about of time on their side.
For example, if a child received an annual contribution of $1,000 starting at birth, with a 7.2% return their account could have a balance of about $39,000 at 18. If the trend continues throughout adulthood, the child could be looking at retirement savings of nearly $1 million by the time they hit retirement age.
Older children may also qualify for additional seed money. The Michael & Susan Dell Foundation has pledged to contribute $250 for the first 25 million eligible children born between 2016 and 2024 who live in eligible ZIP codes with median household incomes below $150,000. To check eligibility, you can enter your zip code on the Trump Accounts Guide.
How to use Trump Accounts effectively
Families may choose to fund Trump Accounts for the sole purpose of covering higher education costs. But the savings in these accounts can be used for much more. If your primary goal is paying for college, 529 plans are still one of the most effective tools available because they offer tax-deferred growth and tax-free withdrawals for qualified education expenses.
For families focused on saving for tuition, it may make sense to use a 529 plan for college while continuing to contribute to a Trump Account for future savings. A child who graduates with student loans still has decades left to repay them. But a retiree who reaches age 65 without retirement savings has far fewer options.
While every situation is different, maximizing as many years of compounding as possible may be more valuable in the long run than simply using the account for education.
In addition to the long-term potential, families should also be aware that the tax rules surrounding Trump Accounts will likely evolve over time. Before making any withdrawal or conversion decisions, it's important to understand how they'll affect taxes under the current law.
Working with a tax professional or financial adviser before making any decisions can help families determine the most appropriate strategy for their situation.
One more way to use Trump Accounts
Aside from building wealth for the future, parents who choose to open a Trump Account can also view it as an opportunity to teach their children about important financial concepts such as budgeting, investing and the value of long-term planning.
Understanding compound growth and delayed gratification can give them the skills necessary to continue managing the account once they turn 18.
Trump Accounts offer a unique opportunity for families to begin investing earlier than ever. While the government's contribution to eligible newborns, and the additional seed money that may be available for those who qualify, provides a great foundation, the true value of these accounts are the amount of time the investments have to grow.
With consistent investing, thoughtful planning and financial education, these accounts give the next generation the ability to start building wealth at birth.
Investment advisory services offered through Brookstone Wealth Advisors, LLC (BWA), a registered investment advisor. BWA and Beckett Financial Group are independent of each other. Insurance products and services are not offered through BWA but are offered and sold through individually licensed and appointed agents.
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