In his State of the Union address, President Donald Trump took a victory lap over the rollout of his “baby bonds” program, dubbed “Trump Accounts.” During the speech—which clocked in as the longest on record—the president claimed an 18-year-old could start from nothing and earn $100,000. “How much money is that for somebody that started with nothing?” he asked.
They could earn even more if parents can max out these 401(k)-style accounts. Starting July 5 of this year, parents of eligible children will be able to contribute up to $5,000 a year to their child’s account. To qualify, children must be U.S. citizens under the age of 18 with a Social Security number. Additionally, the U.S. Treasury will contribute a one-time $1,000 payment to babies born between Jan. 1, 2025, and Dec. 31, 2028, to kick off the program.
How the numbers break down
The Council of Economic Advisers (CEA)—an executive branch agency led by Trump appointees Pierre Yared and Kim Ruhl—released an analysis last August estimating potential savings through Trump Accounts. The projections, based on historical S&P 500 total returns over rolling 18‑year holding periods from 1975 to the present, range from a low annualized return of 5.4% to a high of 18.5%. Under these conditions, parents who contribute the maximum $5,000 per year to their child’s account could expect to accumulate between roughly $187,000 and $730,000, noted the CEA report. A government website for Trump Accounts estimates they could accumulate as much as $271,000 in 18 years.
However, an independent check via the investment calculator maintained by the U.S. Securities and Exchange Commission finds those numbers are slightly inflated. The calculation from this source sets projected returns for an 18-year account with $5,000 annual contributions between about $162,000 and $674,000.
Still, those are some hefty savings, especially for some who, Trump noted, might come from nothing. For those from lower socioeconomic backgrounds, there are several philanthropists who have pledged contributions to the accounts, adding to the initial $1,000 Treasury contribution. Dell Technologies CEO Michael Dell and his wife, Susan, contributed $6.25 billion specifically to lower-income households. That funding will be available to the first 25 million children ages 10 and under living in zip codes with median incomes below $150,000, adding an additional $250 per account, according to a White House statement. Several companies, including JPMorgan Chase, BlackRock, Intel, and Coinbase, have also pledged to match the Treasury’s $1,000 seed money.
The tax structure is still being hammered out
During his State of the Union address, President Trump claimed the Trump Accounts were “tax-free investment accounts for every American child.”
But the reality is the accounts are not entirely tax exempt, according to experts. “It’s not something that is tax-free,” Dianne C. Mehany, EY private national tax leader, told Fortune. “And it’s not something that grows tax-free like it does for other retirement accounts.”
The Treasury’s $1,000 seed funding and the charitable gifts go into the account before taxes are paid. But those contributions are subject to regular income tax when withdrawn.
However, while the money grows in the accounts, the earnings are tax-deferred, functioning akin to an IRA. “It is essentially a tax-deferral mechanism,” Mehany said. “The Trump Accounts for children is not the same thing as [401(k)s or Thrift Savings Plans] as it is currently written. You are definitely saving for your children. You are definitely receiving a match from the U.S. government, which is great if you’re in a certain income bracket and your child is born under a certain year.”
Nonetheless, the Trump Accounts offer another way for parents to prepare their children for the future, be it for education, starting a business, buying a house, or even retirement. Having the accounts provides even 18-year-olds who came from nothing something to stand on.
