The accounts named after the president are available nationwide and can be created for anyone under the age of 18 with a valid social security number. Parents can simply download the app.
Families, friends and employers can contribute up to $5,000 per year per child, who can access the funds when they turn 18.
By law, the money must be invested in a low-cost index fund designed for long-term growth. But while the money grows tax free, withdrawals are subject to taxes and a possible 10% penalty if made before the age of 59 and a half.
To avoid such a penalty, the money must be assigned to pay for certain things, such as higher education, buying or building a first home, or for personal emergency expenses.
Trump Accounts add to other existing tax-efficient savings schemes that Americans can use for retirement, such as IRAs, or for educational purposes, such as 529 plans, which parents use to save for their children’s college fees.
According to a Congress report,, external Trump Accounts are a new form of traditional individual retirement account (IRA), but differ because of certain rules.
While the White House has been keen to push the scheme, reaction to it has been split.
The White House’s argument is that Trump Accounts offer millions of children a way into stock ownership in the US, which it says has historically been “unevenly distributed, with many households – especially younger and lower‑income families – having little or no exposure”.
However, Will McBride, chief economist at the Tax Foundation think tank, says the scheme is too complicated to sign up to, which will lead, in his view to a “minority that benefits”.
He suggests those that will take advantage will be the parents of children who are “relatively well-informed, relatively well-off, relatively tuned in [and] have their act together”.
However, Andy Blocker, head of policy, regulatory and government relations at financial services firm Edward Jones, believes the $1,000 contribution for babies born during Trump’s second term in office will remove a “barrier of having nothing to start with”.
“If by year-end more families have a clear on-ramp to begin saving and investing for their children’s financial futures, that’s success,” he suggests.
Adam Michel, director of tax policy studies at the Cato Institute, says the idea of the scheme is admirable, but warns it might “not live up to the rhetoric”.
He says the main benefit is the $1,000 starting subsidy but suggests many families would be better off using existing savings accounts.
He also points out barriers such as penalties for early withdrawal, as seen for other savings accounts, adding that lower-income children may feel compelled to take the money out when they turn 18 to “help make ends meet”, and therefore have to pay a penalty. “Trump Accounts do not fix that problem.”
