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A new federal initiative known as Trump Savings Accounts offers a one-time, tax-deferred $1,000 investment for every baby born in the U.S. between Jan. 1, 2025, and Jan. 1, 2029.
The funds are placed in an account that tracks a broad U.S. stock index, and can later be used for approved purposes such as higher education, starting a business, or buying a home. However, certain states have set up comparable “baby bonus” investment accounts, but the Trump Savings Accounts are federal and have no income restrictions.
Here’s what you need to know about the differences between the two.
Key Takeaways
- Trump’s baby accounts are intended to “change the lives of middle-class families across America.”
- Some experts have criticized the new program for its restrictive structure and failure to address income inequality.
- Comparable “baby bonus” and college tuition accounts exist at a state level and vary in structure, eligibility criteria, and starting value.
Some experts have commented that Trump Savings Accounts seem needlessly restrictive compared to other programs meant to foster long-term financial success for future generations, and that they don’t offer enough support for lower-income families.
How Trump Savings Accounts Work
Trump Savings Accounts have fairly limited financial eligibility criteria. There are no income requirements to qualify, but both parents must have Social Security numbers, and the child must be a US citizen.
The growth potential of a Trump Savings Account is highly dependent on a contributor’s ability to add funds to the account over time.
Without regular annual contributions, the growth potential may be fairly limited. But, for those who can contribute the maximum annual amount of $5,000, it could add up significantly over time.
Comparing Trump Savings Accounts With State Savings Programs
| Comparing Incentivized Savings Accounts | ||||
|---|---|---|---|---|
| Account Type | Starting Value | Intended Purpose | Rules and Structure | Potential Value |
| Trump Savings Account | $1,000 | Buy a home, start a business, or fund higher education | Maximum annual contribution of $5,000 until the child reaches 18 years of age; balance is invested in a diversified fund that tracks a “well-established” U.S.-stock index | Anywhere from $2,000 (no funds added) to around $130,000 ($5,000 a year added) at age 18, assuming a 4% compound annual growth rate |
| CalKIDS (California) | $500 to $1,500 | Fund higher education | Funds cannot be added; must be linked to a 529 account to contribute | Variable |
| Alfond Grant (Maine) | $500 | Fund higher education | Funds cannot be added; must be linked to a 529 account to contribute | Variable |
| CT Baby Bonds (Connecticut) | $3,200 | Help low-income children buy a home, start a business, or fund education or retirement | Funds are held, managed and invested by Office of the Treasurer; Participant must complete a financial literacy course to file a claim | Value of initial investment is expected to grow to between $11,000 to $24,000 depending on when claim is filed |
| 529 Account | Variable | Fund higher education | 2025 maximum annual contribution of $19,000 to stay within gift tax limits; some states also offer tax benefits and place lifetime contribution | Variable, but contributions are allowed |
There is much debate about the pros and cons of each type of account.
Financial advisor Neal Albritton characterizes state baby bonus accounts as “small, state-funded jumpstarts—often aimed at addressing wealth inequality by helping low-income children with asset building for a more successful adulthood.” In his view, Trump Savings Accounts are potentially more flexible.
Corey Pederson, CFP and wealth strategist, believes that state-run 529 plans offer more flexibility to families than Trump Savings Accounts.
“There are more investment options in a 529 plan, as well as potential state tax benefits. While there are more permitted uses of Trump Account funds, such as purchasing a home or starting a business, if the named beneficiary doesn’t use the funds, they are kind of stuck in the Trump Account, and non-qualified withdrawals are subject to additional penalties.” In contrast, with a 529 plan, you can change the beneficiary to a sibling.
Taking money out of a Trump Savings Account is a taxable event, incurring long-term capital gains tax. This is unlike many 529 accounts, which allow tax-deductible contributions.
According to Pederson, another benefit is that 529 accounts are front-loadable, meaning that 5 years’ worth of the annual contribution can be contributed at once to “start the growth at a higher point and take advantage of compoundable returns.”
In comparison, with a Trump Savings Account, possible contribution amounts are limited to $5,000 per year.
The Bigger Economic Picture
E.J. Antoni, Senior Fellow at Unleash Prosperity and Chief Economist at Heritage Foundation, considers incentivized savings accounts to be limiting in general.
“Something we’ve observed when people have money in an HSA, for example, is that there are plenty of times when they might really need the money for another purpose. In the event of an emergency, they may have to tap into an account and end up getting whacked with taxes and penalties because of the way we’ve structured the accounts and our tax codes.”
“I think it’d be much more helpful if people had access to money for a wider variety of uses,” he said.
Antoni also expressed concern that the government currently doesn’t have the money to fund the program.
“Regardless of what we’re spending on, new spending measures mean that we’re going to have to borrow. That’s not a good thing,” he said. “Anything we’re borrowing is a burden on future taxpayers—the very people we’re trying to help.”
The Bottom Line
Trump Savings Accounts promise a nationwide investment opportunity for an upcoming generation of children. However, compared to other existing state-level options, the program doesn’t seem to offer as many benefits for parents aiming to save for their child’s future.
It remains to be seen whether they will truly help “change the lives of middle-class families across America” and “set them on a course for prosperity from the very beginning,” as an official White House release proclaims.
