Will Trump’s children’s accounts really be worth $170,000 over 18 years?
The IRS announced new guidance last week regarding so-called Trump accounts, surrogacy-based accounts included in the sweeping package of tax cuts signed into law earlier this year. The authorities said that this account could be worth $ 170,000 or more after 18 years – but financial proofs question the figures behind the bold claims.
The government has promised to put $1,000 into this account for children born between 2025 and 2028. That money will be distributed in $250 increments to 25 million children aged 25 and under who live in zip codes with a median income of $150,000 or less, greatly increasing the pool of eligible children.
After seeding the first $1,000 or $250, the maximum annual contribution to the trump account will be $5,000 (adjusted for inflation beginning in 2028). The IRS says that benefits and certain other benefits will be able to contribute more than the annual limit of $5,000, although it has not provided further details. Employers can contribute up to $2,500 net of parents’ taxable income, which counts toward the $5,000 cap.
“I think there is a good opportunity here, because the employer can put $ 2,500 and it is not counted as income to get a tax in Winston-Salem, NC” It is a way to get young people who focus on financial literacy before, even if it is a few thousand dollars. “
The biggest strength of – and the biggest unanswered questions about – this narrative comes from what money will do over time. In a brief white house session last week, Sen. Ted Cruz (R-Texas) detailed some background statistics that contained the best eye numbers, using the example of a girl who will be born this year. Here is what he said:
“His parents, his family or employer put $5,000 each year in that account. If you take the historical average growth of the S & P 500, which is 7% a year, you will have $170,000 in this account.
“And if he ends up saving, at the time this little girl has $700,000 in that account. We are talking about the children of the mother waiting tables with about $700,000 saved at the time of 35.”
Do the numbers add up?
“The concern I have is that the S&P 500 is not delivering [7]Elizabeth Pennington, Elizabeth Pennington, Elizabeth Pennington, Elizabeth Pennington, Elizabeth Pennington, Senior Associate, Senior Associate in a strong financial system.
Cruz’s math was a rough estimate because the IRS says the $5,000 annual limit will be indexed to inflation starting in 2027, so parents must save (or contribute on behalf of their child) more than $5,000 to withdraw the money.
More realistically, to achieve those kinds of returns, you would need more than a $1,000 government-sponsored seed payment — a lot more.
To reach approximately $170,000 in 18 years, the child’s parents or employer will have to kick in a maximum annual contribution of $5,000 every one year. After the Kick in fee is charged, that adds up to about $100,000. That’s $90,000 in total.
Sure, $170,000 is a heck of a lot more, but coming up with six figures might not be so easy for American families who already struggle with day care, doctor visits and other big-ticket items that can sink household budgets.
While it’s technically daring, financial planners are quick to point out that the odds of a single mother being negative are offset by $5,000 and price adjustments. Each child – Or even $2,500 more, if they work for an employer who contributed the highest – to contribute every year for 18 years in a row, is low.
The economic projects of the White House arcier … and less likely: a report from the Council of Economic Advisers, or CEA, has calculated the types of conditions to use the range of estimates in Trump’s accounts. To reach its most optimistic status of “High Return”, the S & P would need to show a return of 18.5% per year – 18 years in a row. The CEA metric for calculating the “midpoint” returns over 18 years was 10.3%, and at the lower end, it was calculated 5.4%.
“Last year, the S & P returned 25%, so it’s not a long time,” said Jonathan Lee, a senior portfolio manager at the US bank. “Over 18 years, that’s a long time to have near-20% returns.”
“A lot of this comes down to when you turn 18,” Lee said. “There are decades lost, so, let him speak, but he has a long time there … I think 5.4% is more reasonable than 18.5%, but the estimate of 10.3% is a strong assumption in their approach.”
CEA uses the same assumptions for its long-term calculations. If the contributions are remembered every year, and if the S & P delivers an annual return of 14.1% for a period of 28 years, the owner of the Trump account can wake up with $ 1.9 million.
Big questions about risk, return, other complications remain
In this case, it is not just the market that is known to return those questions. That’s when the bar starts to really rise to open that $ 1.9 million in 28 years.
Many details of the plan still need to be released, but under current IRA rules, the IRS said Trump accounts will be subject to this after the account holder becomes the IRA contribution limit.
In this case, an 18-year-old child will be required lead At least an inflation-adjusted $7,000 each year to have enough money to contribute, because an IRA can only be funded with pre-tax dollars.
Another big question is how the government will handle the money in the trump account when it comes to calculating financial aid. “Would it be considered as a child’s property? That needs to be answered,” said the teachers.
This is important because it is possible that colleges may look at Trump’s ratings as assets that they will count against when distributing need-based aid. Employed college students can determine how much aid they need if they earn more than a certain amount — $11,510 for the 2025-2026 Free Application for Federal Student Aid, or FAFSA.
“For a family that has enough money to save for another car, again, that might not be a big deal … but it’s not a lot of families,” he said. “If Freshman year coincides with a recession, families can be forced to sell through the recession and lock in those who have lost.”
And families will have no way to protect their account balances from market dips — and another concern is the financial benefits associated with Trump accounts. When Index funds are used in a 401(k) or 529 with an early established term, they are often scheduled to reinvest until they reach a lower level of value such as the target date.
But the IRS guidance specifically prohibits Trump account money from being Cash-Like Push or Money Market, meaning families could not change their distributions to protect the income.
Even if a young person received more than $ 7,000 a year that they could invest rather than use the expenses of the Trump account, it should not be specified that if these Trump Trump contributions, they should not come with the use of other IRA contributions.
Current IRA rules state that the cap is cumulative; In other words, if you have two Iras, you cannot contribute $7,000 to each. If the Trump accounts fall under this program, this would require the account holder to stop investing in other IRAs, even if those instruments offer different funds.
The lack of diversity is another red flag that puts pros pate about Trump’s accounts. The IRS explained that both the initial seed money and subsequent contributions and investment profits will be invested in funds or exchange-traded funds (etfs) that track an index such as the S & P 500 or another item that contains “primarily Expan Equity,” the agency said.
“There is risk. Perhaps the most obvious is that investment options will be limited,” Lee said. “Diversification is another way to reduce risk in a portfolio over the long term. Geographic Diversification is part of that.”
Bottom line
The initial payment of $ 1,000 will certainly be accepted by parents, and even if it is not strong, that amount will increase over time. The lower end of the CEA rating – no more than the initial payment of $ 1,0000 and the average return of 5.4% for 18 years – shows $ 2,577, more than double the initial investment.
If parents or employers contribute half of each year ($ 2,500, adjusted for inflation), even at a return of 5.4%, which adds up to $ 94,993. Almost six figures is not a small sum, and it is not a stretch to think that employers can offer these contributions as an employee perk, which would not require parents to kick in their money.
This could be the most important takeaway Trump accounts for American families, according to Pennington. He says: “We are looking at that money growth … which is not something special in Trump’s accounts. “That is what it means to invest in the stock market for the long term.”
More from money:
Now that Trump’s ‘big,’ good ‘law, here are the big tax changes
Better than a Piggy Bank: 3 Ways to Invest in Your Child’s Future
$1,000 Baby Bonus: What to know about ‘Trump accounts’ for newborns
