A new federal savings initiative, known as “Trump accounts,” signed into law by President Donald Trump, could significantly alter the financial future of millions of American children.
What Happened: The Trump Accounts initiative, part of the One Big Beautiful Bill Act, will provide a $1,000 head start to every baby born in the U.S. The accounts will allow for additional contributions from families and employers, potentially leading to the creation of retirement millionaires from today’s youth, reported Newsweek.
These accounts, much like traditional retirement accounts, provide tax-advantaged growth and allow penalty-free withdrawals after age 59 and a half. Early withdrawals may also be permitted for certain purposes, such as education costs, purchasing a first home, or starting a business.
Scott Hefty, senior wealth manager and founding partner at Serae Wealth told the publication, “This account reflects a broader shift in how Americans build wealth across generations. We are moving toward a model where families, employers, and the federal government each play a part.”
Matt Hylland, a financial planner at Arnold and Mote Wealth Management explained, with a 7% annual return, investing $5,000 yearly could grow to about $6.95 million by age 65. A more modest $1,000 yearly investment would yield around $1.46 million. On a more conservative note, Hylland stated that $1,000 government-seeded account left untouched could grow to about $93,380 by age 65.
“If the seed contribution continues beyond 2028…the potential for long-term impact grows even further,” he added.
SEE ALSO: Trump Calls It ‘The Biggest Deal Ever,’ But Critics Are Pointing Out ‘Nothing’s Been Signed’ With The EU -- Did The President Score A ‘Lowercase Win?’
Why It Matters: The “Trump accounts” align with the ‘Start Young‘ philosophy of billionaire investor Warren Buffett. The tax-deferred investment account will be for each child born between January 1, 2025, and December 31, 2028. The government would seed each account with $1,000, and guardians could contribute up to $5,000 annually. Notably, consistently contributing the $5,000 maximum requires parents to be financially well-off, as they likely have other savings commitments like 401(k)s.
The IRS is expected to clarify tax rules before the accounts launch, which will affect savings outcomes.
However, not everyone agrees that this is the best approach. Some critics argue that the plan may not be the smartest idea, as it would give parents a new, stock-indexed nest egg they could add to, but not touch, until the child turns 18.
Furthermore, a Benzinga reader poll suggests that parents could use the $1,000 investment accounts to invest in mutual funds, ETFs, and individual stocks, including fast-growing Magnificent Seven stocks like NVIDIA Corporation (NASDAQ:NVDA), Apple Inc. (NASDAQ:AAPL) and Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) being top preferences.
READ MORE:
- Trump Administration Weighs ‘Paradigm Shift’ In Patent System To Raise Billions In Revenue: Report
Image via Shutterstock
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
