Latest news with #TrumpAccounts
Forbes
15-07-2025
- Business
- Forbes
How An Economist Thinks About 'Trump Accounts'
The 'Trump Accounts' program seeds American newborns with an investment nest egg that leverages the ... More power of compound interest to serve generational wealth building. Tuck away in President Trump's new tax law, the One Big Beautiful Bill, is a new program creating 'Trump Accounts,' which are a tax-deferred investment vehicle for every newborn American citizen born between 2025 and 2028. The program automatically deposits a $1,000 government contribution into each account, which is then invested in a low-cost U.S. stock index fund. Additional private contributions of up to $5,000 annually are permitted from parents or employers, the latter of whom can contribute up to $2,500 tax-free. Funds become accessible at 18 for qualified expenses, with broader withdrawal options phased in over time. At first glance, this is a pro-savings, pro-investment initiative that aligns with many recommendations from economists. But to determine whether it is a good deal economically, it makes sense to take a step back and analyze this from the economist's point of view. Economists tend to emphasize the costs and benefits of programs. This means focusing on how a program changes incentives and behavior on the margin and what good and bad outcomes follow. Economists are also concerned about any added risk, because an increase in expected returns can still lower welfare if it loads too much market volatility onto people. First, as economist Alex Tabarrok points out, the government's $1,000 contribution per child (applied to approximately 3.5 million newborns annually) implies a direct fiscal cost of over $3 billion per year. This money will likely have to be borrowed. However, while these payments are a cost to the U.S. government, they are a benefit to whoever lends the money at interest. Thus the payments and receipts cancel out in the form of an economic transfer. So, the $1,000 grant is really just a redistribution from taxpayers and lenders to newborns, which is neutral in terms of efficiency. What's less neutral, however, are the opportunity costs. When the government borrows, it issues bonds. Investors who buy those bonds are, in turn, not investing that money in other areas of the economy. That's the heart of the tradeoff. Will Trump Accounts Boost Investment or Just Shift Money Around? If this federal borrowing displaces investment in low-yielding vehicles like money market funds or purchases of other governments' low-yielding bonds, and instead redirects capital into stock market index funds (which generally yield higher average returns), society might be better off. That's a win for allocative efficiency. Likewise, if the borrowed money would otherwise have gone toward consumption, or if investors would have just sat on the funds in the form of cash, then shifting overall spending in the direction of more investment is a net positive for the economy. However, because the bonds finance stock purchases, society is effectively entering a leveraged position on behalf of every child. The leverage may boost expected returns for society, but it also couples newborns' welfare to market risk that taxpayers may not want to bear. Moreover, if this borrowing crowds out marginal investments in equities or something similar—which may provide similar after-tax returns—then the benefit is a wash. In that case, we're simply redirecting investment through political rather than market channels without gaining much in the process. Also worth considering is how the investment funds will be used. Just purchasing securities through an index fund doesn't in itself create any benefits to the economy, since on the other side of these trades is someone selling securities. Thus, additional money floating around in the financial system needs to ultimately find its way into the financing of new companies or expansions of existing businesses if it is to provide a boost to the economy. In short, there is a lot of uncertainty about whether the Trump Accounts will ultimately pass a cost-benefit test. Contrast Trump Accounts with the Trump proposal to create a U.S. sovereign wealth fund. While the latter idea appears to have been sidelined for now, it arguably has a stronger efficiency case, especially if financed by selling underutilized government assets like land. Asset sales are less distortionary than taxes or borrowing, as redirecting dormant capital into productive private use is a clear gain for the economy. Wealth-Building and Reform of Social Security Looking ahead, Trump Accounts could serve as a pilot project for bigger reforms. Social Security, as it stands now, operates like a Ponzi scheme. Current workers fund retirees, with no individual account ownership. That model is politically fragile and may be fiscally unsustainable given the demographic changes that lie ahead. Trump Accounts could be a first step toward a more individualized, investment-based public pension system. At scale, such accounts might not only boost national savings and by extension productivity, but also provide a firmer foundation for old-age security. However, any transition would have to reckon with the 'double‑payment' problem. For a time, workers would finance both existing retirees and their own funded accounts. Additionally, gains will be muted if take‑up proves uneven. For example, if the only people who make tax-advantaged contributions are those who would have saved on behalf of their children anyway, then the government will have spent money subsidizing behavior that would have happened regardless—an expensive way to achieve nothing new. From a growth standpoint, these funds can serve as seed money for young people to start a business, fund education, or invest in new skills. This may yield substantial benefits. On the other hand, if the returns get dedicated to travel or other forms of trivial consumption the benefits may be considerably lower. Trump Accounts won't transform the economy. But they could boost long-run savings and give more Americans a financial foothold, in which case they may represent a modest yet meaningful nudge in the right direction. In a country plagued by under-saving, the idea deserves to be taken seriously. Their ultimate success hinges on whether the leveraged risk is worth bearing and whether participation is broad enough such that private saving rises. From an economic perspective it is not guaranteed their benefits will exceed the costs. But Trump Accounts are promising. If they lead us to think bigger about fixing Social Security or safeguarding American wealth, then they will have served a valuable purpose.
Economic Times
13-07-2025
- Business
- Economic Times
Can a $1,000 Trump Account make your baby a future millionaire?
Synopsis A new federal program called Trump accounts aims to boost children's wealth. Every US-born child between 2025 and 2028 will receive a $1,000 contribution. Families and employers can also contribute annually. Investment experts believe these accounts could grow substantially over time. Even small contributions could lead to significant savings for college or retirement. This initiative offers a unique wealth-building opportunity. Representative Image A new federal program—nicknamed 'Trump accounts'—could set your children on a path to millionaire status. These accounts will provide a $1,000 one-time government contribution to every U.S.-born child between 2025 and 2028. Parents and employers can also make annual contributions—up to $5,000 from families and $2,500 from employers—which can be invested in low-cost mutual funds or ETFs tied to major U.S. stock indexes like the S&P 500. Though details are still emerging as federal agencies draft regulations, investment experts say the Trump accounts could deliver substantial long-term gains. With consistent contributions and favorable market performance, these accounts have the potential to grow exponentially through compound a report, the Fortune wrote that if a family contributes just $20 a week ($1,000/year) and an employer adds the $2,500 maximum annually, the account could grow to over $100,000 by age 21—assuming a modest 7% annual return. Keep investing, and that account could be worth over $2 million by retirement age, the report added citing estimates from Russell Investments CEO Zach at the maximum allowed contribution of $5,000 per year, a child's account could be worth $190,000 after 18 years with an 8% annual return—enough to help with college, a down payment on a home, or retirement savings. A Head Start Other Accounts Don't Offer Unlike Roth IRAs, which require earned income, or 529 plans that are primarily for education expenses, Trump accounts can be opened at birth and are solely focused on wealth-building. That early start provides a major financial even if families can't contribute beyond the initial $1,000, the power of compound interest still adds up. At an 8% return, that initial amount alone could grow to nearly $4,000 in 18 years—completely What are Trump Accounts and who qualifies?Trump Accounts are federally backed investment accounts created for every baby born in the U.S. between January 1, 2025, and December 31, 2028. Each child receives a $1,000 one-time government contribution. Parents or legal guardians—who must have a Social Security number and work authorization—can open and manage the account, contributing up to $5,000 annually.2. How are Trump Account funds invested and used?The funds are invested in a U.S. stock market index. Over time, the investment grows with the market. The money can later be used for key life goals such as college tuition, vocational training, buying a home, or launching a business.3. When can a child access the funds?Partial withdrawals are allowed starting at age 18 for approved purposes. Full access is granted at age 25 for specific goals like education or entrepreneurship. Unrestricted use of the funds is permitted once the account holder turns 30.4. Who manages the account until the child becomes an adult?Until the child turns 18, the account is managed by their parent or legal guardian, who makes all investment and contribution decisions.5. Why are some financial experts skeptical of Trump Accounts?Critics point out that unlike 529 plans, Trump Accounts offer no tax deductions and earnings are taxed as ordinary income. Financial advisers like Amy Spalding continue to favor 529 plans for their tax advantages and broader investment options.
Time of India
13-07-2025
- Business
- Time of India
Can a $1,000 Trump Account make your baby a future millionaire?
A new federal program—nicknamed 'Trump accounts'—could set your children on a path to millionaire status. These accounts will provide a $1,000 one-time government contribution to every U.S.-born child between 2025 and 2028. Parents and employers can also make annual contributions—up to $5,000 from families and $2,500 from employers—which can be invested in low-cost mutual funds or ETFs tied to major U.S. stock indexes like the S&P 500. The Power of Early Investing Though details are still emerging as federal agencies draft regulations, investment experts say the Trump accounts could deliver substantial long-term gains. With consistent contributions and favorable market performance, these accounts have the potential to grow exponentially through compound interest. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Join new Free to Play WWII MMO War Thunder War Thunder Play Now Undo In a report, the Fortune wrote that if a family contributes just $20 a week ($1,000/year) and an employer adds the $2,500 maximum annually, the account could grow to over $100,000 by age 21—assuming a modest 7% annual return. Keep investing, and that account could be worth over $2 million by retirement age, the report added citing estimates from Russell Investments CEO Zach Buchwald. Even at the maximum allowed contribution of $5,000 per year, a child's account could be worth $190,000 after 18 years with an 8% annual return—enough to help with college, a down payment on a home, or retirement savings. Live Events A Head Start Other Accounts Don't Offer Unlike Roth IRAs, which require earned income, or 529 plans that are primarily for education expenses, Trump accounts can be opened at birth and are solely focused on wealth-building. That early start provides a major financial advantage. And even if families can't contribute beyond the initial $1,000, the power of compound interest still adds up. At an 8% return, that initial amount alone could grow to nearly $4,000 in 18 years—completely hands-off. FAQs 1. What are Trump Accounts and who qualifies? Trump Accounts are federally backed investment accounts created for every baby born in the U.S. between January 1, 2025, and December 31, 2028. Each child receives a $1,000 one-time government contribution. Parents or legal guardians—who must have a Social Security number and work authorization—can open and manage the account, contributing up to $5,000 annually. 2. How are Trump Account funds invested and used? The funds are invested in a U.S. stock market index. Over time, the investment grows with the market. The money can later be used for key life goals such as college tuition, vocational training, buying a home, or launching a business. 3. When can a child access the funds? Partial withdrawals are allowed starting at age 18 for approved purposes. Full access is granted at age 25 for specific goals like education or entrepreneurship. Unrestricted use of the funds is permitted once the account holder turns 30. 4. Who manages the account until the child becomes an adult? Until the child turns 18, the account is managed by their parent or legal guardian, who makes all investment and contribution decisions. 5. Why are some financial experts skeptical of Trump Accounts? Critics point out that unlike 529 plans, Trump Accounts offer no tax deductions and earnings are taxed as ordinary income. Financial advisers like Amy Spalding continue to favor 529 plans for their tax advantages and broader investment options.
Yahoo
13-07-2025
- Business
- Yahoo
Here's how a $1,000 ‘Trump account' could swell to $100,000 by age 21—and $2 million by 60—even with modest contributions from families
The One Big Beautiful Bill that was signed into law last week includes a provision for so-called Trump accounts that provide a one-time contribution of $1,000 from the federal government for U.S. babies born from 2025 to 2028. Depending on how much is invested and how well the stock market performs, the accounts could grow substantially over time. Parents are getting a new option to build wealth for their kids under the new tax-and-spending law signed by President Donald Trump last week. The so-called Trump accounts, which are expected to be available next July, are open to babies who are U.S. citizens born from 2025 through 2028 and have Social Security numbers. The federal government will make a one-time contribution of $1,000. Families can also contribute up to $5,000 a year, with employers allowed to chip in up to $2,500 of that amount. The money must sit in low-cost stock mutual funds or ETFs tracking a U.S. stock index, such as the S&P 500. Key details have yet to be spelled out as federal agencies must begin the rule-writing process to implement the program. But the investment community is already touting the potential benefits. 'It can help Americans build financial security earlier and more confidently and, over time, ease the pressure on both the safety net and the federal budget,' Russell Investments Chairman and CEO Zach Buchwald wrote in the Washington Post on Thursday. 'This kind of long-term investment in people addresses a deep, persistent challenge: Most Americans don't save or invest nearly enough during their working years.' The ability for employers to make contributions, which wouldn't count as taxable income, is key because it can allow the accounts to grow significantly, even with modest sums from families, he added. Buchwald laid out a hypothetical scenario where a family contributes just $20 a week into a Trump account, or about $1,000 a year, with an employer adding another $2,500 a year. Assuming a 7% rate of return, the account could top $100,000 by the time the child turns 21, he estimated. It's a relatively conservative figure considering the S&P 500's annual return has averaged above 10% since 1957, albeit with some big swings in the process. If contributions keep rolling in, the magic of compounding could swell the Trump account to more than $2 million by the time the holder is 60, Buchwald added. 'That early start doesn't just help with paying for college or buying a first home—it sets the foundation for lifelong financial security through to retirement,' he said. Of course, more aggressive contributions and a stronger stock market would result in fatter accounts. A family that maxes out the $5,000 annual contribution limit could see the account jump to more than $190,000 after 18 years and an 8% annual return. Trump accounts represent another investment tool for families looking to establish some financial resources for their children. Parents can already open Roth IRAs and 529 education accounts for their kids. But they can only start IRAs when their kids are earning income, and withdrawals for 529s are largely limited to education-related expenses (though unused funds can be rolled into a Roth IRA with certain limits). In addition, other families may not have the financial means to set up IRAs, while many Americans don't open their own retirement accounts until they've landed their first jobs in their 20s, or later. A key advantage of Trump accounts is that contributions can start very early in a child's life, allowing for more years to build wealth. 'To me, it's a supercharged IRA,' Cheryl Costa, a financial adviser in Framingham, Mass., told the New York Times. This story was originally featured on
Yahoo
13-07-2025
- Business
- Yahoo
Here's how a $1,000 ‘Trump account' could swell to $100,000 by age 21—and $2 million by 60—even with modest contributions from families
The One Big Beautiful Bill that was signed into law last week includes a provision for so-called Trump accounts that provide a one-time contribution of $1,000 from the federal government for U.S. babies born from 2025 to 2028. Depending on how much is invested and how well the stock market performs, the accounts could grow substantially over time. Parents are getting a new option to build wealth for their kids under the new tax-and-spending law signed by President Donald Trump last week. The so-called Trump accounts, which are expected to be available next July, are open to babies who are U.S. citizens born from 2025 through 2028 and have Social Security numbers. The federal government will make a one-time contribution of $1,000. Families can also contribute up to $5,000 a year, with employers allowed to chip in up to $2,500 of that amount. The money must sit in low-cost stock mutual funds or ETFs tracking a U.S. stock index, such as the S&P 500. Key details have yet to be spelled out as federal agencies must begin the rule-writing process to implement the program. But the investment community is already touting the potential benefits. 'It can help Americans build financial security earlier and more confidently and, over time, ease the pressure on both the safety net and the federal budget,' Russell Investments Chairman and CEO Zach Buchwald wrote in the Washington Post on Thursday. 'This kind of long-term investment in people addresses a deep, persistent challenge: Most Americans don't save or invest nearly enough during their working years.' The ability for employers to make contributions, which wouldn't count as taxable income, is key because it can allow the accounts to grow significantly, even with modest sums from families, he added. Buchwald laid out a hypothetical scenario where a family contributes just $20 a week into a Trump account, or about $1,000 a year, with an employer adding another $2,500 a year. Assuming a 7% rate of return, the account could top $100,000 by the time the child turns 21, he estimated. It's a relatively conservative figure considering the S&P 500's annual return has averaged above 10% since 1957, albeit with some big swings in the process. If contributions keep rolling in, the magic of compounding could swell the Trump account to more than $2 million by the time the holder is 60, Buchwald added. 'That early start doesn't just help with paying for college or buying a first home—it sets the foundation for lifelong financial security through to retirement,' he said. Of course, more aggressive contributions and a stronger stock market would result in fatter accounts. A family that maxes out the $5,000 annual contribution limit could see the account jump to more than $190,000 after 18 years and an 8% annual return. Trump accounts represent another investment tool for families looking to establish some financial resources for their children. Parents can already open Roth IRAs and 529 education accounts for their kids. But they can only start IRAs when their kids are earning income, and withdrawals for 529s are largely limited to education-related expenses (though unused funds can be rolled into a Roth IRA with certain limits). In addition, other families may not have the financial means to set up IRAs, while many Americans don't open their own retirement accounts until they've landed their first jobs in their 20s, or later. A key advantage of Trump accounts is that contributions can start very early in a child's life, allowing for more years to build wealth. 'To me, it's a supercharged IRA,' Cheryl Costa, a financial adviser in Framingham, Mass., told the New York Times. This story was originally featured on Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
