Trump accounts: A nest egg with strings attached

There’s a lot for parents and guardians to consider about the new so-called Trump accounts, said Ashlea Ebeling and Richard Rubin in The Wall Street Journal. The Treasury Department has now created a Trump account “for any child with a Social Security number who is under 18 at the end of the year.” This new type of savings account is “a custodial individual retirement account for children,” and it comes with $1,000 of seed money from the federal government for children born between 2025 and 2028. “Parents or guardians must claim the accounts”—on the Trump Accounts app or at TrumpAccounts.com—to request the free cash or make their own contributions, up to $5,000 a year. The money has to be invested in a low-cost exchange-traded fund “that tracks the performance of the S&P 500.” The accounts can also receive “donations of individual stock from nonprofits,” and beneficiaries won’t pay taxes on dividends or capital gains. But withdrawals of any funds, including the government seed money, will “count as taxable income”—and there may be an early distribution penalty for withdrawals before age 59½.

Despite those limitations, said The Washington Post in an editorial, these accounts “offer real promise.” They could become a valuable “wealth-building tool” for millions of children who otherwise might not have any long-term savings. The “twin magic of compound interest and long-term returns” can help them pay for college, start a business, or buy a house, market permitting. It’s a “historic” achievement, said The Washington Times. The White House Council of Economic Advisers estimates that, if maximum contributions are made for a child born this year, that child would have $303,800 in their Trump account by age 18, “projecting average stock market returns.” Talk about “setting up children for success.” Trump may have “done more for America’s children than any of his predecessors.”

Letting rich billionaires donate stocks to these accounts “feels icky,” said Catherine Rampell in The Bulwark. The Trump administration recently “changed the ways that benefactors could benefact,” allowing them to give shares of individual stocks as long as they reach at least 5,000 kids. More importantly, “the recipients cannot refuse the gift” and have to hold it for five years. A newborn could then theoretically become a shareholder in a company that “manufactures weapons, runs casinos, or is helmed by a possible neo-Nazi.” Elon Musk, for example, said this week he is donating one share of SpaceX stock to “every kid in America” through Trump accounts. Such tie-ups turn “an otherwise inoffensive concept” into a vehicle to help rich donors “offload overvalued stocks onto children” and score a “big tax write-off” before the market crashes.

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