Imagine an American newborn starting life with an investment account opened and funded by the government. It may sound like fiction, but this is the proposal behind the so-called “Trump Accounts,” an initiative from the new U.S. domestic policy that promises to inject $1,000 into retirement accounts for babies born between 2025 and 2028.
But what’s behind this measure? Is it just a symbolic political gesture, or is there real potential for economic and social transformation for the new generations?
What are “Trump Accounts”?
These accounts are part of a tax and spending package approved during President Trump’s administration. Although initially designed to encourage the use of funds before the age of 30, the final version approved by the Senate turned the program into a hybrid retirement account model, strongly inspired by traditional IRAs.
Every baby born in the U.S. between 2025 and 2028 who has a Social Security number will automatically receive $1,000 from the federal government to start their account — with no need for proof of family income.
About 3.6 million babies are born in the United States each year, which could bring the program’s cost to several billion dollars annually when the seed funding is provided.
How can the money be used?
“Trump Accounts” will initially be structured as long-term investment accounts focused on building wealth over time. The deposited funds cannot be withdrawn before the beneficiary turns 18. From that point on, the account will operate under the rules of a traditional IRA (Individual Retirement Account), respecting the annual contribution limits and withdrawal guidelines established by the IRS (Internal Revenue Service).
According to IRS rules, contributions to traditional IRAs may be income tax-deductible, depending on the taxpayer’s income and filing status. Withdrawals made before age 59½ are generally taxed as ordinary income, along with an additional 10% penalty. However, this penalty may be waived in certain circumstances, such as paying for higher education, the birth of a child, or the down payment on a first home.
As for how the money is invested, the funds must be allocated into low-cost equity funds, such as ETFs or mutual funds that track the S&P 500 index. The strategy is based on the idea that early investment allows time for the power of compound growth to work in the account holder’s favor.
Senator Ted Cruz, one of the plan’s advocates, emphasized that the goal is to “unleash the power of capital and create new generations of capitalists.”
Who else can contribute to the account?
In addition to the government’s initial contribution, parents, relatives, and even employers may contribute up to $5,000 per year to the child’s account. It’s important to note that employer contributions of up to $2,500 per year will not be considered taxable income.
However, this aspect has raised concerns among experts: low-income families may not be able to afford additional contributions, which could limit the program’s impact for those who need financial support the most.
Comparison with other account types for children
According to financial advisor Cheryl Costa, the main appeal of the Trump Account is the investment’s maturity time. “It’s like a turbocharged IRA, since the money could remain invested for more than 60 years,” she explained.
| Account Type | Primary Purpose | Allowed Contributions | Tax Benefits | Usage Restrictions |
| Trump Account | Retirement and long-term savings | Up to $5,000/year (parents/family); up to $2,500/year (employer, non-taxable) | Potential future deductions (similar to Traditional IRA) | Withdrawals allowed only after age 18; 10% penalty before 59½, with some exceptions |
| Traditional IRA | Retirement | Up to $7,000/year (depending on income and age) | Income tax deductible (in some cases) | 10% early withdrawal penalty before age 59½ |
| 529 College Savings Plan | Higher education savings | Varies by state; can exceed $300,000 total | Tax-free withdrawals for qualified education expenses | Must be used for qualified educational purposes |
Is the program truly effective?
Despite its ambitious proposal, analysts from the Urban Institute and the Tax Foundation caution that practical implementation still raises questions: How will the accounts be opened? How will the funds be managed? Who will oversee them?
Moreover, the real impact on economic inequality remains uncertain. As Madeline Brown of the Urban Institute pointed out, “It’s hard to imagine this alone reducing wealth disparities if only families with means can make additional contributions.”
Are the accounts useful for college savings?
College savings plans, known as 529 accounts, are generally a better option if the goal is to save for education, said Cheryl Costa. State-sponsored accounts typically offer higher contribution limits and more favorable tax treatment. Some states, for instance, provide tax incentives for 529 contributions, and withdrawals are not subject to income tax when used for qualified educational expenses.
Is it worth participating?
Despite the challenges, many experts see the initiative as a positive step. For families already invested in financial education and thinking about their children’s future, this account could represent a gateway to wealth-building.
And at the end of the day, as Cheryl Costa, a financial advisor in Framingham, Massachusetts, said: “Who’s going to say no to $1,000 free for your newborn?”
If you’re in the United States and expecting a baby in the coming years, it’s worth keeping an eye on the upcoming guidelines from the U.S. Treasury and the IRS to ensure your child starts life with an advantage that could yield dividends for decades to come.
