Among the goodies tucked into the GOP’s sprawling budget law, the One Big Beautiful Bill Act, is the “Trump Account”—a new investment vehicle for babies and children. Parents can deposit up to $5,000 a year in after-tax dollars. Employers can contribute too. And for children who are citizens born from 2025 to 2028, the feds kick in a one-time deposit of $1,000.
Trump Accounts “will afford a generation of children the chance to experience the miracle of compounded growth,” gushed a White House statement, which included blurbs from the CEOs of Dell, Goldman Sachs, Uber, and Altimeter Capital. “With these accounts, children will be much more likely to graduate from college, to start a business, to buy a home, and achieve lifelong financial stability,” Dell CEO Michael Dell promised grandly.
But just as the shuttered Trump University was a poor facsimile of a real school, Trump Accounts are a poor copycat of the ambitious “baby bonds” idea championed for decades by Republican and Democratic lawmakers. Rather, Trump Accounts are cynically branded freebies, much like the COVID-19 stimulus checks that also carried Trump’s name during his first term. They’re a distraction from Trump’s much bigger giveaways to the ultra-rich, and the $1,000 grants conveniently expire in 2029, making their extension a handy campaign promise. Far from revolutionary, Trump Accounts are ineffectual, inefficient, and of little benefit to the lower-income families who most need a boost.
Appreciating the true shoddiness of Trump Accounts requires a short trip through time.
The first champion of accounts at birth was former Senator Bob Kerrey, a Nebraska Democrat who proposed “KidSave” accounts in the 1990s to boost retirement security. As originally envisioned, Kerrey proposed giving newborns $1,000 (the equivalent of about $2,100 today), plus $500 on each of a child’s first five birthdays. The Social Security Administration would automatically create a child’s account at birth, and funds would be administered like the federal Thrift Savings Plan for government employees. The conservative Heritage Foundation endorsed in 2000, as did the center-left Progressive Policy Institute. (Disclosure: I wrote that endorsement.)
The idea of government largesse for newborns took on multiple names and iterations over the years, including “child development accounts,” “children’s savings accounts,” and “baby bonds.” In 2004, former Goldman Sachs CEO and New Jersey Senator Jon Corzine, a Democrat, and Senator Rick Santorum, the Pennsylvania Republican, introduced the ASPIRE Act, granting newborns $500 at birth ($1000 for low-income children), plus up to $500 a year in federal matching funds for private contributions up to age 18, depending on household income. More recently, in 2023, Senator Cory Booker, the New Jersey Democrat, introduced the American Opportunity Accounts Act, an audacious plan to offer $1,000 accounts at birth, supplemented by up to $2,000 a year in federal funds depending on family income.
Compared to the bold aims of these earlier plans, Trump Accounts are thin gruel. And in a perversion of these earlier proposals—which sought to alleviate vast disparities in wealth—Trump Accounts will only cement existing inequities. Given Trump’s dynastic aspirations, perhaps it’s no surprise that Trump Accounts’ biggest beneficiaries will be affluent children already enjoying the advantages of generational wealth.
Trump Accounts are stingy—unless you’re already rich.
Whatever Albert Einstein might have said about the power of compound interest, a single shot of $1,000 at birth doesn’t add up to that much money. At a fairly optimistic 8 percent of return with no additional contributions, $1,000 grows to just $3,996.02 after 18 years—less than the current sticker price for one year’s tuition at a community college. (The historic average annual return of the S&P 500 is about 6.5 percent after adjusting for inflation.)
Moreover, a good chunk of this money could be eaten up by investment fees. Unlike other baby bond proposals, which created savings accounts held by the government, Trump Accounts must be held at a brokerage or other private financial institution. This structure “poses a serious risk to the program’s benefits,” says an Urban Institute analysis, “potentially eroding whatever investment gains may be realized, [and] harming the low-wealth families that most need the accounts.” (Trump Accounts could, however, prove a windfall for whatever bank or brokerage holds these accounts.)
The real benefit of Trump Accounts is to wealthy families who can contribute the permitted maximum of $5,000 a year. Calculated at the same 8 percent rate of return, those families would accumulate as much as $190,947.64 at year 18. This extreme difference in outcomes is why earlier “baby bonds” proposals included additional contributions for low-income families, savings matches, or both. Trump Accounts offer neither.
Many kids could end up excluded, especially if they’re poor.
The new law leaves many questions unanswered about establishing and maintaining Trump Accounts, providing only that they are “created or organized” by the Treasury Secretary under “regulations or guidance established by the Secretary.” But one key element seems missing: automaticity. While earlier versions of the law appeared to call for the automatic creation of Trump Accounts and their $1,000 grants, the final text repeatedly references the “election” of an “eligible child” into a Trump Account. One result is that parents with the knowledge and wherewithal are likelier to take advantage, while lower-income households with less financial savvy are likelier to lose out.
A crucial benefit of the original “baby bonds” idea—particularly for low-income households with otherwise limited access to traditional banking and savings vehicles—is automatic account creation. Champions of baby bonds argued that automatic accounts would not only help level the field for low-income kids but also promote savings, financial literacy, and inclusion in the mainstream banking system. (According to the FDIC, 35 percent of Black households earning less than $15,000 have no bank account, i.e., are “unbanked.”)
While it’s possible that the lure of Trump Accounts could spur more savings among lower-income households, it’s unlikely. As it is, low-income families barely participate in existing savings vehicles. For instance, only about 1 percent of households earning $30,000 to $40,000 have opened a 529 college savings account for their children, according to the Tax Policy Center, while 40 percent of 529 account holders earn more than $200,000. Just 17 percent of households earning $50,000 or less hold an individual retirement account (IRA), compared to 72 percent for those earning above $500,000.
Babies born too early or too late are SOL
In 1977, Congress fixed an error in the Social Security benefits calculation that gave a windfall to beneficiaries born between 1910 and 1916. In the transition to the correct (and lower) formula, seniors born between 1917 and 1921 (the “notch”) got a cut in benefits relative to their slightly older peers. Rankled by the seemingly differential treatment, these “notch baby” seniors zealously lobbied for higher benefits, and the “Notch Fairness Act” has been a fixture on the Congressional legislative calendar for years (though it has never passed).
The Trump Accounts’ grant of $1,000 to a four-year cohort creates a similar kind of “notch,” violating the principle of “horizontal equity” by treating similarly situated children differently for an arbitrary reason, the date of their birth. While a baby born on January 1, 2025, gets a $1,000 government check, the baby born at 11:59 pm on December 31, 2024—or 12:01 am on January 1, 2029—does not. This outcome is unfair: no other savings vehicles create such an arbitrary windfall. It also sets a terrible precedent: Sound public policy is consistent and evenhanded; Trump Accounts are not.
Existing vehicles offer better returns; Trump Accounts offer complexity.
The U.S. tax code is already stuffed with tax-preferred savings vehicles and credits, including retirement accounts such as Roth accounts, 401(k)s and IRAs; health savings accounts for medical costs; Achieving a Better Life Experience (ABLE) accounts to cover disability-related expenses; and education savings accounts, including 529 plans and Coverdell accounts. According to the Congressional Research Service, research finds that tax-preferred savings vehicles rarely encourage more savings; they divert savings from fully taxable accounts to ones that enjoy a government subsidy. It’s unlikely that Trump Accounts will change that dynamic; instead, they’ll add more complexity to an already complex tax code.
Moreover, existing retirement and education savings vehicles might be better for people who can afford to take full advantage of Trump Accounts. The leading education savings vehicle, the 529 account, for instance, is more flexible about the choice of investments than Trump Accounts, which must be invested in an index fund. Contribution limits are also higher. Unlike a 401(k), Trump Account contributions are in after-tax dollars, meaning deposits have no tax benefit for contributors but employers could deduct their contributions. And as Kiplinger points out, “the core benefit of the Trump Account—tax-free compounding of returns—is already available in a regular everyday brokerage account.” In other words, you can open a custodial account for your child, invest it in an indexed fund, and get much the same benefit as a Trump Account—and without the restriction of holding the money until age 18. (And even more confusingly, Trump Accounts are treated like regular individual retirement accounts after age 18.)
Most tragic, Trump Accounts are a wasted opportunity to accomplish something truly groundbreaking on behalf of American children. As contemplated in earlier proposals, “baby bonds” could be life-changing for kids not born to wealth. But as with most Trump promises and Trump-branded products, Trump Accounts don’t live up to the hype.
