What to know about $1,000 "Trump accounts" for newborns included in House bill

CBS News

22-05-2025

The Trump administration wants to kickstart wealth creation for American children by creating $1,000 "Trump accounts" for babies born during President Trump's second term in office.
Originally called "money account for growth and advancement," or "MAGA" savings accounts, the renamed accounts would be managed by banks or investment firms, and operate like traditional investment accounts.
Here's what to know about the proposed "Trump accounts" for newborns.
What are they called?
House Republicans on Wednesday submitted an amendment to Mr. Trump's domestic policy bill to ditch the original "Maga" acronym and rename the accounts "Trump accounts," after the president himself.
Who would get one?
Every child born in the U.S. between Jan. 1, 2025 and Jan. 1, 2029 with a Social Security number, and whose parents have Social Security numbers, would be automatically enrolled in the program. The U.S. Treasury would set up and fund the accounts.
Madeline Brown, senior policy associate at the Urban Institute, said automatic enrollment is a key component of the proposed pilot program, given some adults' unfamiliarity with such investment vehicles. Some of the lowest-income families, who could most benefit from the boost, "often don't know about these kinds of programs. There's a huge awareness gap," she told CBS MoneyWatch.
"Automatic enrollment is fundamental to improving the likelihood that it reaches the lowest-income families," she added.
What would be in a "Trump account"?
The government would contribute $1,000 to every eligible child's account, which would be invested in the stock market on their behalf. Families and third parties could also contribute up to $5,000 a year to a child's account.
Sam Taube, investment expert at personal finance site Nerdwallet, said the proposed "Trump accounts" are similar to programs currently offered by a number of states, but the contributions aren't as generous. For instance Colorado's First Step program awards every newborn $100 in a 529 college savings account, plus a match of $500 a year for the first five years of savings, totaling up to $2,500 in gift contributions.
What could the money be spent on?
Accountholders would only be approved to be spend investment funds on prescribed costs, such as a down payment on a home, education-related expenses, or starting a small business. Use of the funds to pay for unapproved expenses would subject accountholders to penalties.
But broadening the scope of approved expenditures would be even more beneficial to many families, Brown noted.
"When it comes to wealth building, we have to make sure the target sums that kids end up with at 18 are in line with the things we're saying you can use the money for," Brown explained.
If lower-income accountholders' families can't contribute the additional $5,000 per year, the sum they would end up with as adults might not cover a down payment, for example.
"There are lots of different projections around what $1,000 can grow to with different interest rates, but it's not a down payment," she said. "So unless additional contributions come from the community, the federal government or state governments, we're not likely to see these accounts grow to the sums that we're saying are qualified uses.
When could the funds be withdrawn?
Half of the funds could be withdrawn when a child turns 18, at which point the account's gains would be taxed at the long-term capital gains tax rate, so long as the money were spent as directed. If the funds were used for other purposes, withdrawals would be taxed as income. A 10% penalty for misspending the money could also apply. Accountholders would have access to their full balances between the ages of 25-30 for approved purposes, and after 30, would be able to withdraw the funds for any purpose.
Brown said she thinks improvements could be made to the way the program is structured, particularly around how account withdrawals are taxed. She noted that the lowest-income families would be the most likely to spend the funds on unapproved expenses, and face tax penalties.
Most Americans can't afford a $1,000 emergency expense, according to a January report from Bankrate, making low-earners more likely to need to tap into the funds for surprise costs.
"They are the most likely to have to withdraw dollars for nonqualified expenses, and in doing so, they [would] receive a tax penalty. So there are ways to exempt emergency expenses, and that would be a fix," Brown said.
Otherwise, she said, the upsides to the accounts are limited. "There are other places you can save money where you won't have that tax penalty if you withdraw the funds early," Brown said.
Taube of Nerdwallet noted that the proposed accounts' tax benefits are also questionable.
"Although they are advertised as tax-advantaged accounts, the way they work does not seem to be that different from how a taxable brokerage account would work," he told CBS MoneyWatch.
That said, "given the state of saving for children's future expenses in this country, the accounts do seem like they could help at least somewhat," Taube said.