New "Trump Accounts" Offer Tax-Advantaged Savings for Children with Government and Private Contributions
The federal government and several corporations will contribute to newly created child savings accounts that invest in index funds, prompting financial advisers to weigh them against existing options such as 529 plans and retirement accounts.
A new savings vehicle called "Trump Accounts" was launched this weekend after congressional approval in the recent tax and spending legislation. The accounts, available to any U.S. citizen under 18, invest contributions in a broad market index fund and become accessible when the child turns 18 for purposes such as education or a home purchase, though non-qualified withdrawals incur a tax penalty.
Children born between 2025 and the end of 2028 will receive an automatic $1,000 seed contribution from the federal government, which financial planner Michael Reynolds estimates could grow to nearly $4,000 by age 18 assuming an 8% annual return. Those born earlier may be eligible for a $250 donation from Michael and Susan Dell, provided their families live in zip codes with median incomes below $150,000. Additional corporate contributions are being offered, including $250 from Micron for children near certain worksites and matching employee donations up to $1,000 per child; Mastercard, Uber and Visa have announced similar matching programs.
Financial experts advise parents to prioritize their own retirement savings before allocating funds to these accounts. "Parents should max out their own retirement accounts first," said Carrie Joy Grimes, CEO of WorkMoney, noting that relying on children's accounts could create future financial strain for families.
The accounts differ from existing 529 education plans, which allow tax-free withdrawals but restrict use to qualified education expenses. Advisors suggest that wealthier families might use both vehicles for added tax benefits, while lower-income families could benefit from the aggregated contributions that the accounts enable.
Ray Boshara, senior policy advisor at the Aspen Institute, said the accounts could provide significant financial support for children from lower-income households.