You’ve probably seen the Trump Account headlines: “Every newborn gets $1,000!” “Family members can add $5,000 a year!” Sounds like a game-changer, right?
In theory, the so-called “Trump Account” is meant to help close the wealth gap by giving every U.S. citizen born between January 1, 2025, and December 31, 2028, a head start — automatically creating a savings account with a $1,000 government deposit. Families can contribute more over time, and the money grows tax-deferred.
But once you look under the hood, the deal loses its shine. Let’s put on our financial hats.
Is there a Catch?
Yup. A few big ones. Like many Washington programs, the Trump Account has some drawbacks:
- Withdrawals are taxed. Even if the money is used for “approved” purposes like college, a first home, or starting a business, it’s still taxed at capital gains rates. No tax-free ride like a 529 plan.
- Strict limits on access. Your child can take out only half the money at age 18. The other half is locked up until they turn 31.
- Penalties are harsh. Use the money for anything not on the approved list, and you’re looking at a 10% penalty plus regular income tax.
- Complex rules. Just like many government-run programs, the fine print is long, confusing, and easy to trip over.
For middle- and upper-income families, the Trump Account hoops may not be worth jumping through. For lower-income families, the $1,000 seed money may sound appealing — but if they can’t afford to keep contributing, that small balance might be eaten up by fees or inflation before it ever amounts to much.
Are There Better Options?
Yes, Virginia, and they already exist. If you want real flexibility and tax advantages, here’s what’s already on the menu:
- 529 College Savings Plans: Tax-free growth, tax-free withdrawals for education, and much more control over what the money can be used for – tuition, books, computers, even some room and board.
- Custodial Roth IRA: If your child has earned income, this is one of the best long-term vehicles out there. Contributions grow tax-free and money can be withdrawn for retirement, education, and even a first-time home purchase without penalties.
- Cash Value Life Insurance (the smart kind): For parents who want long-term, tax-advantaged flexibility and protection, some permanent life insurance strategies offer living benefits, self-completion, and no government strings attached.
Bottom Line
The Trump Account may have good intentions; but, typical of many government programs, it comes with complex rules, limited flexibility, and penalties that can wipe out any benefit for those who need it most.
The political headlines may look good – like no tax on tips, etc., it attracts votes – but a Trump Account doesn’t appear to solve any real problems beyond attracting voters. It’s too bad politicians don’t have to take a fiduciary oath.
Here’s a breakdown on the ‘big beautiful bill’ that was signed into law on July 4, 2025.
Hope this has been helpful.
Jim
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