Trump accounts explained: How they work, who qualifies

Core Insights - The introduction of Trump accounts aims to provide a tax-deferred savings vehicle for families, particularly targeting children under 18, with a government-funded initial deposit of $1,000 for eligible newborns [1][8] Summary by Sections Overview of Trump Accounts - Trump accounts are defined as individual retirement accounts funded with after-tax dollars, available to U.S. citizens under 18 with a Social Security number [4] - The accounts are designed to be invested in low-cost index funds, primarily mirroring the S&P 500 or other American stock indices [9] Contributions and Projections - Annual contributions are capped at $5,000, which can include up to $2,500 from employers without affecting the employee's taxable income [5] - Projections indicate that a child born in 2026 could accumulate significant savings, with maximum contributions potentially leading to a balance of $303,800 by age 18 and $1,091,900 by age 28 [6] Eligibility and Enrollment - Eligibility for Trump accounts extends to anyone under 18 by the end of the calendar year in which the account is established, requiring a Social Security number [7] - The enrollment process is currently in development, with a draft form available for establishing accounts [12] Tax Implications - Contributions to Trump accounts are not considered income while the beneficiary is under 18, and certain contributions do not create a basis in the account [14] - Withdrawals made before age 59½ may incur a 10% additional tax unless for specific qualified expenses [11] Comparison with Other Accounts - Experts express skepticism regarding the advantages of Trump accounts compared to traditional IRAs, Roth IRAs, or 529 education savings plans, noting that 529 plans offer tax-free growth for education expenses [15][16] - The structure of Trump accounts, which allows both after-tax and pre-tax contributions, is seen as potentially confusing and less advantageous than existing options [17]