The White House has launched Trump Accounts, a new savings scheme for American children, and is calling it a historic step toward giving every child a stake in the American dream. But critics say the plan is too complicated, benefits the wealthy, and does nothing for the families who need it most.
Launched on July 4, the program is simple in concept: every child under 18 with a Social Security number can open a tax-advantaged investment account. Babies born between 2025 and 2028 get a $1,000 government contribution to start. Family, friends, and employers can contribute up to $5,000 per year. The money is invested in a low-cost index fund, grows tax-free, and cannot be withdrawn without penalty until age 59½, with exceptions for education, a first home, and emergencies.
The White House says about 6 million families signed up before the launch, and more than 500,000 babies have received the $1,000 starter subsidy. Total family contributions have reached $125 million.
“If by year-end more families have a clear on-ramp to begin saving and investing for their children’s financial futures, that’s success,” said Andy Blocker of Edward Jones.
Big business has lined up behind the plan. BlackRock, Visa, and Dell have pledged support.
But the numbers also tell a less optimistic story. About 40% of Americans have no exposure to financial markets at all, according to BlackRock. Six million families may sound like a lot, but it is a fraction of the tens of millions of eligible households.
“Relatively well-informed, relatively well-off, relatively tuned in, have their act together,” is how Will McBride of the Tax Foundation described the likely beneficiaries.
Adam Michel of the Cato Institute was blunter. “Trump Accounts do not fix that problem,” he said, referring to the early-withdrawal penalties that would hit low-income children hardest. A family that needs to withdraw the money at 18 to pay for rent or tuition faces a 10% penalty plus income tax on the gains.
The $1,000 subsidy is the main benefit, Michel argued. For everything else, families would be better off using existing savings accounts.
A Congressional report has classified the accounts as a new form of Traditional IRA. The projected returns are eye-catching: a $1,000 contribution with no additions could grow to about $6,000 by age 18 based on historical S&P 500 averages. Adding $250 per year yields about $19,000. The maximum $5,000 per year could produce $271,000.
But those figures assume a stable market over two decades, not a guarantee for families who may need the money long before retirement age.
The scheme launches ahead of the November midterm elections, with the cost of living as a central issue. The White House is betting that the promise of generational wealth will resonate with voters who feel left behind by the economy.
For the families who can afford to leave the money untouched for 59 years, Trump Accounts may indeed build wealth. For the millions who cannot, the program offers a $1,000 start, and a set of penalties for being poor.