On July 4th, Congress signed into law H.R.1 – more commonly known as “One Big Beautiful Bill” – one of the most sweeping policy reforms from the White House in recent memory, and among the most controversial. A seismic shift in U.S. fiscal policy, the bill ushers in significant tax cuts and Medicaid cuts, as well as increases to funding for immigration enforcement and the debt ceiling. The coverage and debate over the legislation have obscured arguably one of its most impactful components – the introduction of savings accounts for all children born in the U.S. over the next four years.
The administration is calling these accounts “Trump Accounts.” Title aside, this initiative has the potential to fundamentally change how – and how many – Americans invest for their children’s futures.
As believers in the power of long-term investing, I have long been a proponent of baby investment accounts (see: How Newborns Can Invest Like Warren Buffett).
Here are the basics:
- Every child born in the U.S. between 2025 and 2028 will receive an account with a one-time government deposit of $1,000, regardless of the parents’ income. The funds cannot be withdrawn until the recipient turns 18, at the earliest.
- The account needs to be invested in broad-based stock funds (such as S&P 500 ETFs), not bonds or a mix of investments.
- The account will grow tax-deferred, and withdrawals can be made once the recipient reaches 18 years old. Withdrawals can be used for education, purchase of a first home, or other qualified expenses, including, eventually, as part of retirement savings.
- Families can contribute additional funds up to $5,000 annually. Parents’ employers can contribute up to $2,500 annually, tax-free.
While financial and tax experts may quibble with some of the provisions relative to other types of savings, the bill offers several clear benefits.
Universality
Education savings accounts already existed before Trump Accounts. State-based 529 plans offer tax-free accounts, but there are no federal contributions. “Baby bonds” have been proposed and discussed for years, usually with means-tests and invested in bonds. Each of these types of plans would support some children with an education savings account.
In contrast, every baby gets a Trump Account. The newborn’s family does not have to be financially savvy or “in the know” to make this happen. While a lack of a means test can be debated, it made passage in Congress a simpler task and will make the administration of these accounts much simpler.
Strength of Public Equities
Another distinctive feature of Trump Accounts is that they will be invested in equities, not bonds or a mix of investments, allowing all children with them to participate in the growth of the equity market.
To get a rough sense of the numbers, let’s model the outcome if this program had been implemented 18 years ago. If a baby born in 2006 had invested a $1,000 government contribution at the end of that year (not great timing, right before the Global Financial Crisis), they would have had almost $6,000 by their 18th birthday in 2024. That is substantially higher than the $1,575 they would have had if they had invested in 10-year Treasuries.
Contributions from families and employers
Beyond the initial $1,000, the option to add an additional $5,000 each year through a combination of parents’ contributions or via their employers could end up being the secret to this initiative’s success.
Recall the earlier example of a child born in 2006. If they had not only received their initial $1,000 but also an additional $5,000 contribution each year, they would have had $360,000 by the time they turned 18 (not adjusted for inflation or rising costs over that timeframe).
That amount of money is transformational, providing an ability to get an education without loans, buy a home, or save for a comfortable retirement down the road. And a financially strong cohort – particularly in the wake of a generation of Americans that are saving less, buying fewer homes, and having fewer children – would make the economy stronger in turn.
The obvious criticism – and a fair one – is that not every family can afford to contribute $5,000 on a yearly basis. But could their employers contribute $2,500? That amount would mean the 18-year-old had roughly $185,000 – a life-changing number.
And why stop there? Friends and extended family could make contributions as birthday gifts. State or local governments could also contribute to some or all of their newborns like California does through CalKIDS. What about philanthropic organizations in targeted areas? Making contributions a common practice would make the accounts more likely to achieve their purpose.
The contributions will make all the difference. It’s also one of the key areas for marketing. If the perception around 529 plans is any indication, there is a lot of work to do in this regard – May 2025 study from Edward Jones found that 52% of Americans don’t know about 529 plans, and 38% feel they are not saving enough for their educational goals. With all the communications firepower of the White House, they’d be well-served to be talking up this program a lot more.
The success of Trump Accounts will ultimately depend on whether families actually embrace them. Without active participation and better information and awareness, these accounts risk becoming little more than a short-lived handout. And they only are slated to apply to babies born by 2028.
It remains to be seen if this administration, or the ones to come, will follow through and make this program thrive. But for the sake of the future of the next generation of Americans, I hope they do.