This week’s introduction of Trump Accounts for children has been met with skepticism from some parents, who worry the free investment initiative might be fraudulent, deceptive, or potentially harmful in the future.
“The level of deception from this administration is unprecedented, so I’m cautious about trusting any financial programs they initiate,” a parent shared with JS.
“Think about any past deal Trump has made. How did those turn out?” another individual commented in an online discussion questioning the program’s authenticity.
Senator Bennie Thompson of Mississippi (D) expressed his disapproval of the program, advising his constituents on Monday that he personally “would pass” on setting up an account. At 78, Thompson has an adult daughter, as noted on his website, who would be ineligible for such an account.
“Trump University already taught us what happens when his name is on the brochure,” stated Thompson, drawing parallels between the accounts and Trump’s unsuccessful university venture.
According to a spokesperson for Thompson’s office, the senator believes federal resources should be directed toward bolstering existing programs like Social Security and food stamps. The Joint Committee on Taxation estimated that Trump Accounts could cost the federal government approximately $15 billion by 2034.
Despite some concerns, financial advisors are urging parents and guardians to accept the funds, comparing the accounts to other established IRA investment options for minors. Since they are managed through the U.S. Treasury Department, these accounts are said to benefit from governmental oversight, which may reassure those doubting their legitimacy.
Johnson Rhett, a certified financial advisor with Branning Wealth Management, remarked to JS on Wednesday, “There’s always going to be reluctance when something like this emerges.” Rhett, whose firm provides fee-only fiduciary advice, noted he has received inquiries from individuals wondering about the “free money” and questioning its authenticity.
“Because it is technically through the Treasury, I find some reassurance as a planner,” he explained. “You’re dealing with an official government platform. However, if someone inherently distrusts the government, that’s a separate issue. Still, there is a level of protection since it’s a government initiative.”
According to the pilot program, each eligible applicant born between 2025 and 2028 will receive $1,000 in seed money from the government, earmarked for investment in a U.S. stock fund. The funds can be left to grow or supplemented with additional contributions. Many financial experts recommend considering other investment options such as 529 plans or brokerage accounts that offer better tax benefits.
Rhett suggests maintaining a Trump Account alongside a 529 account for tax-free educational savings and a Roth IRA for children with earned income. “This shouldn’t be your only savings strategy for your child,” he advises in an online financial planning guide.
Parents or guardians do not need to download the Trump Accounts app to apply. Instead, IRS Form 4547 can be submitted via the IRS’s website, which the IRS estimates takes between 5 and 10 minutes to complete.
“I eventually opened accounts for [my children] through the IRS portal because I felt more secure using a platform that adheres to government regulations on data protection,” a parent shared with JS after initial reluctance to enroll.
According to an estimate by J.P. Morgan, an untouched account could grow to approximately $5,000 by the time the child reaches 18. Contributing an extra $250 annually could increase the balance to $16,000 over the same period.
“For qualified families, there appears to be no downside to receiving the $1,000 government funding, even if no additional funds are contributed,” Adam Frank, head of wealth planning and advice at J.P. Morgan Wealth Management, noted in an online explainer.
Beyond the government’s one-time $1,000 contribution, additional free donations are also available.
The Dell Foundation, for instance, has committed to donating $250 to the accounts of children aged 10 and under residing in zip codes with a median income of $150,000 or less, up to $6.25 billion. Additionally, children in Connecticut are eligible for an extra $250 thanks to a donation from Dalio Philanthropies.
When the account holder reaches 18, the account becomes accessible and converts to a tax-deferred Traditional IRA. Withdrawals for specific approved purposes, such as education and first-time home buying, are penalty-free. The 10% penalty is waived once the account holder turns 59 1/2, as per the Congressional Research Service.
“You can take the $1,000 upfront from the government, let it accumulate until the child turns 18, then decide what to do with it,” Rhett explained for those hesitant to make personal contributions. “There’s no annual tax liability. It operates similarly to a traditional IRA where, unless you’re withdrawing funds, it’s tax-deferred with no tax implications in that year.”
Ultimately, it is up to parents or guardians to decide whether to enroll their child, and Rhett suggests consulting with a financial advisor to establish the optimal savings strategies and goals for their child.
“I recognize that [Trump] is a divisive figure, which may deter some from opening accounts and accepting the $1,000. That’s entirely their choice,” he remarked. “It’s important to conduct your own research or consult your advisor, or ideally, do both.”
