Trump Accounts savings plan could help families—but at what cost?

A new provision tucked into the Republican-backed “big beautiful bill” in Congress proposes a federal child savings program with a $1,000 head start for every eligible newborn. Dubbed the Trump Account—and previously known as a “MAGA Account”—this proposal is positioned as a flagship financial legacy of the Trump administration.

If passed, children born between January 1, 2025, and January 1, 2029, would automatically receive a $1,000 government-funded deposit into a dedicated investment account. That account would operate similarly to a hybrid between a 529 education savings plan and a Roth IRA. Parents and family members would be permitted to contribute up to $5,000 annually per child, with funds invested in a diversified U.S. stock index.

The money can later be used for qualified milestones: education credentials, a down payment on a first home, or to launch a small business. It’s not a universal basic income—but it’s pitched as a generational wealth-building tool. The idea: financial compounding should begin at birth, not after college.

Although the bill still faces a Senate hurdle, it has earned backing from high-profile CEOs like Michael Dell and Goldman Sachs’s David Solomon. Both have pledged employer-matching schemes should the plan pass—effectively doubling the federal starter grant for some households.

The proposed eligibility rules are broad but not all-encompassing. To qualify, a child must:

• Be born between Jan 1, 2025 – Jan 1, 2029
• Be a U.S. citizen at birth
• Have two parents with valid Social Security numbers

This design aims for administrative simplicity. There are no income thresholds or contribution matching requirements, making the base grant truly universal for qualifying births.

That said, the program does not apply retroactively, nor does it support families with children born before the cutoff. Unlike Social Security, it’s not portable to non-citizens or households outside the tax net. And while employer match programs have been suggested by private sector partners, they remain discretionary—not mandated or standardized across industries.

Let’s say a child receives the $1,000 deposit at birth and no other contributions are made. If invested in a broad market index with an average annual return of 7%, the account could grow to approximately $3,800 by age 18 and around $8,000 by age 25—a modest nest egg for educational or entrepreneurial use.

Parents, guardians, or employers may also contribute up to $5,000 annually. Contributions grow tax-deferred, and withdrawals for approved purposes are taxed at the long-term capital gains rate, not income tax rates—making this structure potentially favorable for families in middle-income brackets.

But the key limitation is flexibility. Funds can’t be withdrawn for emergencies, debt repayment, or general expenses without triggering penalties. That places Trump Accounts somewhere between a 529 plan and a retirement account—not fully liquid, but also not wholly restrictive.

While the Trump Account is unique in its federal branding, its design echoes “baby bond” models used at the state level in Connecticut, Colorado, and Washington, D.C. These programs set aside public funds for newborns—typically to be accessed at age 18 for education or asset-building.

On a global scale, Canada’s Registered Education Savings Plan (RESP) and the UK’s now-defunct Child Trust Fund offer comparable inspiration. Both allowed early contributions with government matching, though the UK’s model was phased out amid budget pressures and low uptake.

Critics argue the Trump Accounts are unnecessarily narrow and administratively burdensome. The Tax Foundation and Cato Institute have instead pointed to Universal Savings Accounts (USAs) as a better alternative—low-cost, high-flexibility accounts that:

• Allow up to $10,000 per year in after-tax contributions
• Permit tax-free withdrawals for any purpose
• Require no up-front federal subsidy

These accounts enjoy bipartisan support and have been successfully deployed in Canada. Their main advantage: lower cost to the federal budget and simpler usage for citizens.

For supporters, the symbolism is powerful: every child starts life with financial stake in the market. But for critics, the practical concerns are sharper.

According to the Milken Institute, the $1,000 seed—if matched by an employer—could double to $2,000 at birth and grow to over $16,000 by age 25, assuming consistent equity returns. That’s meaningful capital. But the broader question is cost.

A federal program of this nature, covering 3.5–3.8 million births per year, could add $3 to $4 billion annually to the Treasury’s outlay. In an era of deficit scrutiny, that raises flags. Financial advisors like Mark Higgins warn that unless paired with fiscal reform, such programs can exacerbate long-term structural debt.

Moreover, complexity may hinder adoption. Tax treatment, use restrictions, and parental contribution tracking will require new systems. As Adam Michel of the Cato Institute notes, “A simpler system is a better way to get people to save."

Many families already lean on 529 college savings plans, which offer higher contribution limits, tax-free growth, and—if used for education—completely tax-free withdrawals. These accounts now allow rollovers into Roth IRAs if funds go unused, adding retirement planning flexibility.

By contrast, Trump Accounts impose long-term capital gains tax on withdrawals and limit permitted uses to a narrow set of “approved” life events. The control remains with the system, not the individual.

So why not just enhance 529 plans further? Or integrate with employer-sponsored custodial Roth IRAs for children?

The answer likely lies in branding. “Trump Accounts” represent a political narrative of universal access and capital ownership—a symbolic promise of inclusion in the American economy. But symbolism doesn’t replace function. The Trump Accounts proposal surfaces a deeper policy tension: how do you build citizen-level capital access without inflating systemic fiscal risk?

In theory, starting investment early is sound financial advice. But in execution, the policy reveals tradeoffs between simplicity and showmanship, fiscal discipline and populist ambition.

If you’re a policymaker: the question isn’t whether children deserve a financial start. It’s whether the government can sustainably deliver it without creating more constraints than opportunity.

If you’re a parent: the question is whether this plan gives you more usable options than what already exists.

Because for now, this is not “free money.” It’s tax-deferred, purpose-limited, government-seeded capital—delivered with campaign-friendly language but guarded by complex gates. Financial literacy, employer matching, and true flexibility may do more for a child’s future than any one-time check. Policy must keep pace.