Using this simple tool could help your family become multi-millionaires by the time they turn 50!

What Are “Trump Accounts?”

Recently, President Trump addressed one of the key components of the current version of the “big beautiful” tax bill that was recently signed into law. The bill includes a historic provision to create individual investment accounts for American babies born between January 1, 2025, and December 31, 2028.   To be eligible, the babies must be U.S.-born citizens with valid Social Security numbers, born to parents who also have valid Social Security numbers. 

Below are a few highlights; for more information, please visit the White House website.

• The U.S. government will make an initial deposit of $1,000 per child. 

• Family members and friends may also make annual contributions to these individual accounts, as long as the combined annual contributions do not exceed $5,000. 

• The investment selection must be in a low-cost, diversified U.S. stock index fund or equivalent, and currently, no withdrawals can be made from the account until the child reaches the age of 18.

• Qualified withdrawals will be taxed at the account holder’s capital gains tax rate, which is a lower rate than ordinary income.

• Unqualified withdrawals for a beneficiary under 30 may be subject to ordinary income tax, plus a 10% penalty.

• Trump accounts are intended to be used for certain “qualified” wealth-building expenses such as: higher education, post-secondary credentialing, purchasing a home, or even small-business start-up costs.

  
  

While we have the basic scaffolding of how these Trump Accounts will look, there are still many unanswered questions, particularly related to complicated withdrawal rules (one rule is that no more than half of the balance of the accounts may be withdrawn between the ages of 18 and 25).

Does it really matter?

Yes!  Well, it could—and the degree to which it matters depends on whether the account just sits idly with the initial $1,000 deposit, or family members and others find a way to take advantage of the ability to make extra contributions to the beneficiary account.  

 Here is a chart displaying how a $1,000 investment grows over 25 years, assuming a 10% annual rate of return—the average expected return of a 100% equity portfolio over the past 30 years, according to data from Prudential. 

If you are unfamiliar with the miracle of compound interest, this illustrates how the potential for growth of such a small account can be staggering:

• $1,000 Lump Sum à $10,835

• $1,000 Lump Sum +50/month à $68,730

• $1,000 Lump Sum +100/month à 126,626

• $1,000 Lump Sum +400/month à $483,505

At the age of 25, portions of these accounts would be eligible for withdrawal for qualified expenses and would be taxed at long-term capital gains rates.  However, how might this significant financial head start grow if the balance were not withdrawn and the child (now an adult) simply takes the account and rolls it into an IRA, beginning to make the annual maximum contributions to these accounts until they reach age 50? 

Here’s the table of final balances at age 50 for each inflation-adjusted annual contribution level, assuming a 10% annual return:

Here’s the chart with IRA account balances shown in millions of dollars ($M):

• Dashed lines: Growth from an initial lump sum with no further contributions.

• Solid lines: Growth from the same initial amount plus inflation-adjusted annual IRA contributions, a maximum of $7,000.

Can we do it?

Minting millionaires doesn’t have to be a dream—it starts with small choices.  Choosing to contribute just $50 per month into one of these Trump Accounts, could yield a positive difference of $58,000 by the time a child has graduated college—and a difference of $620,000 by the time a child turns 50 (even if they don’t ever make any contributions of their own).  Suppose the beneficiary of this hypothetical +$50/month Trump Account chooses to follow in the footsteps of their benefactors by maxing out their own IRA contributions. In that case, they will have nearly $1.7 million. 

Make Small Sacrifices

It's so tempting to want to buy the best of everything for your new baby, especially if it's your first.  Social Media algorithms will force-feed you top-of-the-line marketing designed to play on your emotions and make you feel like you have no choice but to buy the high-end stroller, the best crib, the Gucci diaper bag, etc.  Take it from the father of four boys that kids are expensive, and there will always be more things to spend money on rather than save.  How will you stick to your savings plan?  Will you get more joy out of setting your child (or grandchild/niece/nephew) up for a bright financial future than the fleeting happiness that you (or the child) might get from one of the millions of temporary pleasures?  If you can afford to dress your sweet little person in a fresh pair of Nikes, that’s great.  But remember that kids' shoes depreciate faster than a new car being driven off the lot—they could grow out of those sneakers in a matter of weeks or just a few months.  If you want to find $50 per month, you might need to adjust your standards in one or more categories.  As Dave Ramsey says, “Live like no one else now, so that you can live like no one else later.”

If you would like to learn more about Trump Accounts and how they align with your financial plan, please reach out to your advisor today or schedule a meeting with a financial advisor if you don’t have one yet.