Starting in 2025, every American child born through the end of 2028 will automatically receive a $1,000 “Trump account”—a new investment vehicle created under President Donald Trump’s sweeping tax overhaul. But while the headline promise of “free money” may sound appealing, financial experts are urging families to read the fine print.
What Is a Trump Account?
Formally introduced as part of the GOP’s latest tax package, the Trump account is a tax-advantaged investment account modeled loosely on Roth IRAs. Each newborn between 2025 and 2028 will receive a $1,000 government-funded seed contribution. Children born before 2025 can still open an account, but without the initial boost.
Parents can open a Trump account for any child under 18 at a participating bank, with annual contributions capped at $5,000. Employers can chip in up to $2,500 tax-free. The money must be invested in a broad stock index fund, grows tax-free, and is restricted to specific uses until age 30.
Here’s the timeline:
- At 18: Partial withdrawals allowed for “qualified” purposes like college, starting a business, or buying a first home.
- At 25: Full balance accessible for those same uses.
- At 30: No restrictions—money can be spent on anything.
Withdrawals used for approved purposes are taxed at long-term capital gains rates; other uses trigger ordinary income taxes.
Why Experts Are Skeptical
Despite the $1,000 incentive, financial advisors are unimpressed. Many say the Trump account offers limited advantages compared to existing tools like 529 college savings plans or Roth IRAs.
“It’s not very attractive,” said Ann Reilley, CEO of Alpha Financial Advisors. “They’re complicating things for no reason.”
Zach Teutsch, managing partner at Values Added Financial, was more blunt:
“Giving kids money is generally good. But the account structure seems ill-considered.”
He added that families would need to be “shockingly sure” their child isn’t going to college before choosing a Trump account over a 529.
There’s also concern about hidden tax traps. If the money is used for non-qualified expenses before age 30, the account holder gets hit with a higher tax rate. In some cases, experts say, a regular brokerage account could offer more flexibility and better outcomes.
Where the Idea Came From
Though it’s branded with Trump’s name, the concept isn’t new. Progressive lawmakers have floated similar proposals for years, such as “baby bonds” aimed at closing the racial wealth gap. On the Republican side, Senator Ted Cruz championed the idea under the name Invest In America Accounts, touting it as a way to “hook kids on capitalism.”
“There are many Americans who don’t own stocks or bonds,” Cruz told Semafor. “This gives everyone a stake in the free enterprise system.”
Cost vs. Value
At a projected $17 billion over 10 years, the Trump account program is a small piece of the GOP’s larger tax package. Critics say it stays inexpensive largely by limiting its usefulness.
“It’s like, thank you, government, for the free money,” said Alan Cole, senior economist at the Tax Foundation. “But realistically, this is the sixth or seventh best tax-free savings option out there.”
Bottom Line
While the Trump account may encourage early investing and provide a modest boost for newborns, experts caution that existing savings tools offer better flexibility and stronger tax advantages. Unless rules are revised or expanded, most families may be better off sticking to 529s, Roth IRAs, or traditional investment accounts.
Still, for those who are maxing out other options—or simply want to take the government’s $1,000 and walk away—it might be worth opening an account and leaving it at that.Tools
