There’s a new account available for children that has been getting quite a bit of attention, largely because of one number: $1,000.
For children who meet the eligibility requirements and were born between January 1, 2025 and December 31, 2028, the government will make a one-time $1,000 contribution to what’s being called a Trump Account.
Naturally, that raises questions for parents and grandparents.
Should we open one? Should we contribute to it? And if we’re already funding a 529, does this change what we’re doing?
In this week’s episode of Wisdom for Your Wisdom Years, Matt Reynolds and I walk through how these accounts work and, probably more importantly, how I think families should look at them.
The first thing to understand is that a Trump Account is a retirement account for the child.
The child owns it, with a parent or guardian managing it while the child is young. Families can contribute to the account, subject to the applicable annual limits, and the investment choices are intentionally fairly simple.
I actually like that part.
For an account that could potentially have decades to grow, I’m not convinced giving people 500 investment choices makes the outcome any better. A limited menu of broadly diversified, low-cost U.S. stock index funds keeps the focus where it probably belongs: putting money away and giving it time.
But I also wouldn’t get too caught up in the initial $1,000.
It’s a nice start. The bigger opportunity is what happens if a parent, grandparent or other family member continues contributing over the next 18 years.
Even something like $100 a month changes the picture considerably over that length of time. Not because there’s anything magical about $100, but because consistency and time tend to do most of the heavy lifting.
That brings us to another question we’ve already heard: What about the 529?
I don’t think this is an either/or decision.
A 529 is designed for education. A Trump Account is designed for long-term retirement savings. The tax treatment, use of the money and rules surrounding the accounts are different.
So before deciding which account is “better,” I’d first ask what the family is trying to accomplish.
If the priority is helping pay for college, that points you in one direction. If grandparents want to redirect some birthday or holiday gifts toward something their grandchild could potentially have working for them for decades, that may point somewhere else.
And in some families, there may be room for both.
That’s really where I land on Trump Accounts.
I think they’re a positive development, particularly because they introduce children and families to the idea of ownership, long-term investing and delayed gratification very early.
But they’re still one account inside a much bigger financial picture.
The account is new. The planning question really isn’t: What is this money for, and how does it fit with everything else the family is already trying to accomplish?
Listen to Episode here:
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Warm regards,
Matt Murphy, CFP®, AIF®
President, Benetas Wealth |
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