Will ‘Trump Accounts’ make U.S. kids $1 million by age 28? | About That

It sounds a bit like a dream come true.

Donald Trump wants to give every American child born under his administration a so-called Trump account with $1,000 of seed money, free money

from the government. Then his economic adviserss say if that seed is properly watered the way the government imagines with regular annual contributions even under very average conditions and I'm

talking about stock market conditions here that $1,000 initial investment should eventually through continual attention and the power of compound interest very reasonably turn into

something worth a little over a million US by the time the account turns 28 years old. That is the middle-of the

years old. That is the middle-of the road scenario from Trump's Council of Economic Adviserss. If you leverage this

Economic Adviserss. If you leverage this account to its fullest from birth to 28 years old, which is a big idea with big ambition, jumpstarting the American

dream, a pro-f family initiative that will help millions get a big jump on life.

>> The, remarkable, cash, gift, for, 25, million American children. The federal

American children. The federal government will be giving newborns $1,000.

>> But, how, realistic, is, all, of, this?, Are

there strings attached and does the math check out? Well, the answer turns out is

check out? Well, the answer turns out is not very absolutely yes and sort of. Let

me show you.

So, a Trump account is just an investment account for any American child with a social security number.

That's it. That's the basic eligibility.

What makes it interesting is that if you happen to be born between January 1st 2025 and December 31st, 2028, which is basically the span of Trump's current

term in office, then the US government will make a one-time $1,000 deposit into that account. Then the money gets locked

that account. Then the money gets locked into that account for a minimum of 18 years. What does that money do? it grows

years. What does that money do? it grows

because the other constraint for this money is that it must be invested into diversified lowcost index or mutual funds that track American stocks like

the S&P 500, which by the way isn't necessarily a bad thing in terms of your rate of return. Track America's top 500 stocks over the last 18 years. You're up

over 500% from where you started if you just let it sit and grow, which turns that initial $1,000 investment into almost $6,400 by the end of year 18.

That's an annualized rate of return of about 10 12%, which turns out for the S&P 500 lines up pretty closely with the actual historical average over many

many decades. Now say it with me. Past

many decades. Now say it with me. Past

performance is no guarantee of future returns. Okay? I am not a financial

returns. Okay? I am not a financial adviser. I don't have a crystal ball and

adviser. I don't have a crystal ball and I would never suggest what kind of return you're going to get on any amount of money.

But for the S&P, let's go with 10 12%.

And if we're scrutinizing this government claim that a child using this account should be a millionaire by age 28, then we are going to let our money

ride, right? Keep tracking the S&P for

ride, right? Keep tracking the S&P for another 10 years at an annualized rate of return of 10.5% and we end up with $17,000.

That's not nothing, but it's also not a million. So, what are we missing?

million. So, what are we missing?

So clearly, if you're just hoping to magically become a millionaire thanks to Trump's generosity, you can see he's only getting you started, which just to be both clear and fair, is remember

exactly what Trump is promising. But how

do we get that million? Well, the answer is you. You've got to fill in the

is you. You've got to fill in the blanks. A major feature of the plan is

blanks. A major feature of the plan is the potential for parents to contribute up to an additional $5,000 per year initially. Underscore parents underscore

initially. Underscore parents underscore an additional $5,000 per year and underscore initially because the plan is actually for that annual parental

contribution to increase every year 2% each year after the first. Like you see here in this table, you've got your initial $1,000 seed money. You've got

your annual $5,000 contributions every year thereafter, but increasing by 2% each year until your kid gets to be 19 years old, at which point the account in

many ways turns into something resembling more like a traditional IRA.

So the allowable contribution size increases even more to the point where after 28 years, the way to get to this big million number is for the parents to

have invested the sum total of all the numbers in this column, which is $216,53753.

So to restate, to leverage the full power of these Trump accounts and make your child a millionaire by age 28 first you need to assume the S&P 500 is

going to continue generating nearly 11% average returns every year for the next 28, years., Then, you, need, to, have, at least

28, years., Then, you, need, to, have, at least $5,000, but up to almost $12,000 cash every year to dump into the account for

a grand total of just over $200,000 of your own money. Now, there are two things I should state again to be fair.

One, the contributions matter much less the more you can let compounding do the work early on. So, for example, if you made maximum contributions, but only for

the first 18 years instead of the full 28, you still actually get surprisingly close to this million dollar payday at the end of it, regardless. But the

second thing is that now I can actually show you how our math lines up almost exactly with the Trump administration's own calculations.

They did the math on a total of nine different scenarios, different outcomes for future 28-year-old Americans who were born with Trump accounts. Each

vertical line represents different market conditions, weak markets, average markets, and awesome markets. And here's

our million-doll scenario. Max

contributions under average market conditions. But can I just geek out for

conditions. But can I just geek out for a second? Because it's kind of

a second? Because it's kind of interesting how they decided what weak average, and awesome actually mean.

Basically, what they did was look at the last 50 years of S&P 500 data, tracking the best of the American stock market.

Then they calculated the returns on all possible rolling 28-year periods over that 50-year time span. Then they picked

three of those periods. The one which produced the worst results, the one which produced the best results, and then the one which produced average results. So that's how we get to these

results. So that's how we get to these three lines. But I'll keep explaining

three lines. But I'll keep explaining using the projections for when your kid turns 18 and not 28 because that's actually when the money you've invested unlocks for use. So these are probably

the more useful time scales for most people. The low return scenario for

people. The low return scenario for 18-year periods is 5.4% a year. Medium

returns 10.3% and high returns a whopping average of 18.5% every single year. So, at this end of the graph, if the stock market kind of

stinks and you do absolutely nothing with your trump account except receive the $1,000 of seed money at the very beginning, then after 18 years, your money hardly grows because there wasn't

much to compound. Best case scenario you invest nothing. Your 18-year-old

could have 21 grand in the bank if markets knock it out of the park. These

middle points are what your earnings look like if you only contribute half of what's allowed under the rules. So

instead of the max contribution of 5k a year, you're only doing half that, but still increasing by 2% each year. That's

how you end up with these middle earning scenarios. And then at the high end, by

scenarios. And then at the high end, by 18 years old, if you maximally contribute every single year, you could end up with around 200, 300, or 700

grand depending on how markets do. So

that's the math. You can see it works out if the variables line up in very particular ways. But there are two

particular ways. But there are two important questions we haven't fully answered yet. What are the strings

answered yet. What are the strings attached? And how realistic a

attached? And how realistic a money-making vehicle is this really?

So, one critique you'll hear about these Trump accounts is that they disproportionately benefit the wealthy which as a side note would be ironic if true, because historically the whole

idea of baby bonds was basically what these Trump accounts are doing, except designed in a way to give people with less money a leg up.

>> A, baby, bond,, the, idea, was, this, is, a universal policy, automatic enrollment.

Every baby in the country gets $1,000.

After that, the government will make progressive annual deposits up to $2,000 a year income indexed. So, your lowest income families are going to be getting your largest contributions.

>> But, the, reason, these, Trump, accounts might benefit the wealthy is through the math I showed you, which is that you can only really dramatically multiply your

money if you, the parent, already have money to invest. Like remember the difference between what the kids with the least amount of money can end up with after 18 years compared to the kids

with the most amount of money. That's a

pretty big spread. And that is the argument goes increasing the wealth gap not shrinking it. And anyway, how many Americans have an extra 5 grand a year

these days that they're not already using? According to the latest Fed data

using? According to the latest Fed data which updates every 3 years, do you know how much cash Americans hold in accounts that you can actually spend from? The

median for couples with kids, around 12K in transaction accounts, like checking savings, that kind of thing. And if

you're single with kids, half of Americans have $2500 or less in the bank.

>> About, a, third, of, American, households don't have $2,000 in emergency savings.

So that's not even in a college savings account or in an IRA. That's emergency

savings to use if your car breaks down if you have an unexpected bill. So then

to think that somehow they're going to come up with $5,000 per kid per year to contribute is just unrealistic.

>> But, Andrew,, you, might, say,, if, those, are median numbers you just showed for those low bank balances, then that means half of Americans have more than that amount of money available. So maybe some of

them can fully leverage the Trump accounts.

Yeah, maybe. But then the question worth asking is if you have $5,000 just sitting around waiting for an opportunity like this, is this really the best place to spend it? Because

what's really important to know about Trump accounts is what Trump's own economic adviserss state in their own analysis that once the funds unlock at

18 years old, the account generally is treated as a traditional IRA and generally is subject to the same withdrawal rules as other traditional

IAS. Okay. So the moment the money

IAS. Okay. So the moment the money unlocks, the Trump account actually becomes like a retirement account. And

the rules for a traditional IRA are that if you try to withdraw the money before you turn 59 and a half, then not only do you get taxed on what you withdraw

you're also going to pay a 10% penalty for early withdrawal. Now, there is a carveout on this for Trump accounts.

According to the White House, if you use what you withdraw to pay for higher education or to buy your first home or to start a business, that last one's kind of vague, but whatever, then

there's no 10% penalty. And of course if you're withdrawing your contributions as opposed to the account's earnings then you already paid tax on it because your contributions are made using after

tax money. So, you shouldn't get double

tax money. So, you shouldn't get double taxed in that sense. But the earnings on that account, everything you made from compound interest and stock performance

would be taxed as regular take-home pay and not capital gains once you take it out. So the advantage here is really

out. So the advantage here is really about tax deferral. Instead of paying Uncle Sam every year as your account value goes up, you're keeping all that

money inside this growth chamber where the magic of compounding can do its thing. And then only once you're ready

thing. And then only once you're ready to tap that well do you have to pay the taxes that are due. So what's wrong with that?

>> There, are, any, number, of, better, ways, to save for your child's future. Whether

it's for in a 529 plan specifically for education or even in a non-axadvantaged plan often will be a better choice than putting your own money into these Trump

accounts. I expect the Trump accounts

accounts. I expect the Trump accounts will not have a big impact on overall savings rates on sort of long-term wealth trajectories simply because it's

not an attractive savings vehicle. It's

a temporary program uh and it's adding to federal debt which crowds out savings elsewhere in the economy. There's also a political messaging component here. It

is a Trump account. It has Trump's name on it. He is if nothing a tremendous

on it. He is if nothing a tremendous salesman. And so I think the overarching

salesman. And so I think the overarching goal of these accounts is to give Trump a named section of the tax code and a program that he can be proud of.

>> Now,, to, be, clear,, it's, not, that, the Trump accounts have no redeeming qualities because they do. There's the

free seed money.

>> $1,000, is, a, big, deal, for, the, for, the kids. There are lots of low-income kids

kids. There are lots of low-income kids who otherwise would not have that money in savings. And so even if that money

in savings. And so even if that money grows and at 18 they use it to pay for their books or for living expenses in school or their first year of college that's a big difference.

>> There's, also, the, fact, that, your, employer can make some contributions on your behalf, which would reduce your taxable income. But the claim of jumpstarting

income. But the claim of jumpstarting the American dream in a tax environment that, already, has, at least, a, dozen, or, so different tax advantage savings

vehicles. Trump accounts add options

vehicles. Trump accounts add options yes, but also complexity. And it's far from clear whether the people who need the jump start the most will really get

much of one at all.