The "Trump Account" Is Giving $1000 to Each Newborn

During the years 2025 to 2028, American newborns’ families are qualified to collect $1000 intended to create a stable economic environment for their child.

The account is similar to a retirement account since it is tax-free until money is withdrawn. Along with the $1000, family and employers can contribute to the account up to $5000 a year. However, there is no tax deduction for the contributor. Even though the money can be received by any family, there is still an inevitable advantage for the wealthier to receive higher and more contributions from their families.

This money can be invested as well, but the investments must be in stock market funds. The stock market funds must follow the S&P 500 index for the investment to be allowed. It’s not known why families are limited to these stock funds. A possible explanation is the high risk of losing the money.

As the money starts to grow during the child’s life, funds from this account cannot be withdrawn before they fully turn 18. After the child turns 18, the account will run similarly to a traditional I.R.A (Individual Retirement Account). One will have a tax-deferred growth, a tax-deductible for contributors, and also an increase in the contributions limit to $6500 per year.

Exactly like how a traditional I.R.A runs, Ann Carrns explains in her The New York Times article how, “Withdrawals from traditional IRAs before age 59½ are generally taxed as ordinary income, plus a 10 percent penalty.” However, there are still specific situations, such as those involving education or down payments, where the 10% penalty is not applied anymore.

By using the “Trump Account” as an I.R.A, these funds can be invested wisely, leading to growth over the decades. These children get a head start on saving and prevent any situations where they cannot support themselves later on.

Even though these accounts benefit the families and children greatly, using them to save for college is not the best use for them. A better way is through the 529 accounts, especially because they receive special tax treatments that will improve the savings more. From using the 529 accounts, when using the money in the account for educational purposes, any withdrawals will not be taxed, neither will any earnings from your investments. Although using this “Trump Account” can provide various advantages, the account still has issues that can be improved.