'Trump Accounts' set to act as 'an IRA for kids'
$1,000 pf free money allotted for children
By: Danel de Vise
USA Today
..... Every child born between 2025 and 2028 is getting a baby shower gift from congress and the president: a 41,000 deposit into a "Trump Account"
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It's free money, but your baby can't spend it. think of "Trump Accounts" as seed money, basically, to encourage children and families OT save and build wealth for the expenses of adulthood.
..... "It's an IRA for kids," said Evan Morgan, a principal in the tax advisory group at Kaufman Rossin, an accounting and advisory firm.
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Trump Accounts are part of the tax and spending package singed into law this summer [07/04/2025] by President Donald Trump. they join a crowded field of tax-advantaged savings plans that help Americans navigate the costs of education, health care and retirement, among other things.
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What's unusual, in this case, is that the accounts start at birth, and with a $1,000 balance.
..... "To me, if I drew a best-case scenario on that thousand dollars, it would be sitting in that IRA, compounding, until I retired," said J. Spencer Williams, founder and CEO of the Retirement Clearinghouse, a financial technology firm.
..... Here's how the account work, according to analyses from Morningstar, the Tax Foundation and other sources:
..... The government pledges to crate an account for any baby born between 2025 and 2026, and to fund it with a one-time deposit of 41,000. to qualify, the baby need only have a Social Security number.
..... Parents and others may contribute up to $5,000 a year into the accounts until the child turns 18. An employer may contribute up to $2,500 toward the $5,000 cap. state and local governments and private charities will be allowed to make broad contributions.
..... No one may contribute to the account until July 2026. Other details are still being ironed out.
..... To claim an account, parents probably will have to check a box on a tax from testifying that they are new parents, said Williams of the Retirement Clearinghouse.
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The new law requires that Trump Account funds be invested in low-cost stock index funds, which mirror the performance of an index like the S&P 500.
..... Parent contributions are after-tax, but that money is not taxable when it is withdrawn. any earnings on the contributions, however, are taxed when you withdraw them.
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You can't generally withdraw money from a Trump Account until the year a child turns 18. After that, it functions like a traditional Individual Retirement Account.
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That means, 20 or 30 years from now, a young adult with a Trump Account will be able to withdraw money to cover education expenses or a first-time home purchase without penalties.
..... You can also hold on to the money until retirement. At age 59 1/2, the early-withdrawal penalties go away.
..... The accounts originally were designed to be spent by children in young adulthood. The Senate restructured them into something more like a conventional IRA.
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"This became nothing but a retirement account, at the end of the day. And there's nothing wrong with that," said Miklos Ringbauer, a CPA in Southern California.
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Given the promise of free money from the government, Ringbauer said, it's hard to imagine many parents will pass up a chance to acquire the accounts.
..... "Anything is better than nothing," he said. "There are so many kids who start out with nothing."
..... The harder question, perhaps, is whether parents should actively contribute to the accounts over the next 18 years.
..... "It's free money. The question is whether you would add on to it," said Monique Morrissey, a senior economist at the left-leaning Economic Policy Institute.
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If your goal is to save for a child's education, a 529 education savings account "offers more flexibility and tax benefits," according to a Tax Foundation analysis.
....."I think most parents are going to be better off saving in a 529 for their children rather than this new Trump Account, but it certainly makes sense to collect on the $1,000 contribution," said Romina Boccia, director of budget and entitlement policy at the Cato Institute, a libertarian think tank.
..... Boccia calls Trump Accounts "a blatant giveaway, and a way for the Trump administration, in their hopes, to leave a permanent mark by naming a rather useless saving account after the current president.
..... The Tax Foundation notes that the U.S. tax code already provides for "At least 11 different tax-advantaged savings vehicles, each with different rules, limitations and regulations."
..... On the other hand, a Trump Account encourages the kind of long-term retirement saving that financial planners generally recommend. The earlier you invest, the more your investments are likely to grow before you cash them out.
..... I'd call it an 18-year head start to retirement,' said Neal Ringquist, executive vice president of the Retirement Clearinghouse.
..... True, Trump Accounts add another layer of complexity to the tax code. But there's nothing to stop account holders from consolidating their Trump Accounts with other retirement accounts once they reach adulthood.
..... "If the money isn't used, it becomes an ordinary, traditional IRA in its adult life," Williams said.