A major new financial initiative, dubbed 'Trump Accounts,' has been proposed under the One Big Beautiful Bill, with the ambitious goal of helping American children build substantial long-term wealth. This savings program is designed to leverage the power of the stock market and compounding over decades.
Eligibility and Key Features of Trump Accounts
The proposal states that every American child born between January 1, 2025, and December 31, 2028, will be eligible for a Trump Account, provided a parent or guardian chooses to open one. Children under 18 who were born before 2025 can also participate, but they will not receive the initial $1,000 government deposit that the younger cohort is entitled to.
The program sets clear contribution limits. Parents or guardians can contribute up to $5,000 per year, with these annual limits adjusted for inflation over time. In a significant move to boost savings, employers are also allowed to contribute up to $2,500 annually per child's account. These employer contributions are not treated as taxable income for the employee, offering a valuable tax incentive.
Investment Strategy and Projected Growth
All funds deposited into a Trump Account must be invested in specific, growth-oriented vehicles. The rules mandate investment into either S&P 500 index mutual funds or exchange-traded funds (ETFs) that track major US stock indices. This ensures the money is exposed to the historical growth of the American equity market. A critical rule is that funds cannot be withdrawn before the beneficiary turns 18. At that point, the account automatically converts into a traditional Individual Retirement Account (IRA), subject to standard IRA withdrawal rules and potential penalties for early access.
The Council of Economic Advisers (CEA) has modeled potential future values, and the projections are staggering. Using historic S&P 500 returns over 18- and 28-year periods, they outlined several scenarios for a child born in 2026.
In a medium-return scenario with maximum contributions:
- The account could grow to $303,800 by age 18.
- If left to grow until age 28, it could reach $1,091,900.
Even with only the initial $1,000 deposit and no further contributions, the account is projected to reach $5,800 at 18 and $18,100 at 28 in the same medium scenario. The high-return model shows a balance of $730,400 at age 18 and a potential $1.9 million by age 28 with maximum contributions.
The Power of Compounding and Long-Term Lock-in
The dramatic growth projected for Trump Accounts hinges on a few powerful financial principles. The strategy relies heavily on long-term compounding, where investment returns generate their own earnings over time. Combining this with regular annual contributions and the historic performance of the US stock market creates a potent wealth-building engine. The mandatory lock-in period until adulthood ensures the money remains invested through market cycles, allowing time to recover from any downturns.
Once the beneficiary turns 18, the account's nature changes. It transitions to a traditional IRA framework. This means withdrawals before retirement age may trigger taxes and penalties, encouraging the funds to continue growing for the long term. From ages 18 to 28, any further contributions must adhere to the standard IRA contribution limits, which are also adjusted for inflation.
The program has already attracted significant attention, with notable figures like Michael and Susan Dell reportedly pledging $6.25 billion to support these accounts, highlighting the broad interest in this approach to generational wealth creation.
