Trump Accounts Offer $100,000 for Children by Age 21

Parents in the U.S. now have a new avenue to build wealth for their children, thanks to the recent tax-and-spending law signed by President Donald Trump. The legislation includes a provision for so-called Trump accounts, which will provide a one-time contribution of $1,000 from the federal government for U.S. babies born from 2025 to 2028. These accounts are designed to help families build financial security for their children over time.

The Trump accounts will be available starting next July and will be open to babies who are U.S. citizens born during the specified years and have Social Security numbers. Families can contribute up to $5,000 a year to these accounts, with employers allowed to chip in up to $2,500 of that amount. The funds must be invested in low-cost stock mutual funds or ETFs that track a U.S. stock index, such as the S&P 500.

While key details of the program are still being worked out, the investment community is already highlighting the potential benefits. Zach Buchwald, Chairman and CEO of Russell Investments, noted that these accounts can help Americans build financial security earlier and more confidently. He emphasized that the ability for employers to make contributions, which wouldn't count as taxable income, is crucial as it can allow the accounts to grow significantly, even with modest sums from families.

Buchwald provided 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. If contributions continue, the account could swell to more than $2 million by the time the holder is 60, thanks to the magic of compounding. This early start not only helps with paying for college or buying a first home but also sets the foundation for lifelong financial security through to retirement.

More aggressive contributions and a stronger stock market would result in even 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, in addition to existing options like Roth IRAs and 529 education accounts.

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. This early start, combined with the power of compound interest, can lead to significant growth over time. Financial advisers have noted that these accounts are akin to a supercharged IRA, offering families a new way to secure their children's financial futures.