On CNBC’s Squawk Box on Monday morning, correspondent Sharon Epperson framed the importance of the newly launched federal savings vehicle: “Kids are the owners of Trump Accounts.” This new program gives children a meaningful opportunity to build wealth from birth.
The federal government officially launched Trump Accounts for children under 18 on Saturday, with more than 6 million children signed up before launch, according to the Treasury Department. Each eligible child gets a one-time $1,000 contribution from the federal government, and families can add up to $5,000 per child per year. Money is generally locked until age 18, when the account converts to a traditional IRA.
The $1,000 Government Deposit Is Just the Starting Point
The $1,000 gift is amazing, but the real financial mechanic is the potential for a Roth IRA conversion move to offer kids a head start on their retirement savings. Adam Bergman, a CEO who is opening accounts for his kids, told Becky Quick: “It’s twofold. It’s they’re going to be tax-free millionaires. I’m going to explain to them what I’m doing. We’re going to talk about what we’re going to invest in together.” Bergman and his wife are already encouraging their 15-year-old to convert the Trump Account to a Roth IRA at 18 to continue tax-free investing.
A traditional IRA taxes withdrawals in retirement as ordinary income. A Roth IRA, funded with after-tax dollars, allows tax-free growth and tax-free withdrawals after age 59.5. Paying tax upfront on a small balance at 18, when a teenager is likely in a very low bracket, is almost always cheaper than paying tax on decades of compounded gains at 60.
The One Decision That Determines Whether A Child Builds Wealth
The government’s $1,000 contribution gets the Trump Account started, but it is unlikely to create life-changing wealth on its own. The real driver of long-term results comes when families consistently add money year after year, giving compounding decades to work.
That is why Epperson emphasized the behavioral piece: “Teaching that delayed gratification early on is also very, very important.” The power of a Trump Account comes from the habit of investing consistently over time. Every additional contribution has years or even decades to compound, making regular saving far more important than the size of the government’s initial gift.
Additionally, a 529 Plan is an educational savings plan designed to help families save for future educational expenses, with state tax benefits many families are already using. A Trump Account serves a different purpose: a retirement-oriented vehicle the child eventually owns. It can be a smart idea for families to invest in both a Trump Account and a 529 Plan for their children.
What Parents Should Know
A Trump Account is a new government-backed savings account that gives eligible children a one-time $1,000 contribution at birth and allows families to add up to $5,000 per year until the child turns 18.
While the initial deposit provides a valuable head start, the families that will benefit the most are those who consistently contribute over time and take advantage of compounding over decades. Combined with a 529 Plan for education savings, Trump Accounts can give children an early head start on building long-term wealth while also teaching the value of consistent investing.
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