Trump Gives Newborns $1,000 Accounts, But Should Parents Really Ditch Their 529 Plans? Experts Say Not So Fast
President Trump’s latest tax bill includes a crowd-pleasing giveaway: a $1,000 investment account for every eligible baby born between 2025 and 2028.
Designed to build financial independence from birth, these “Trump Accounts” aim to give a new generation of Americans a head start toward prosperity.
Initially dubbed “MAGA accounts”; short for “Money Account for Growth and Advancement”, the name was a not-so-subtle nod to Trump’s iconic slogan.
GOP Renames MAGA Accounts After Trump as Democrats Cry Foul
Democrats pushed back against a series of last-minute changes made to the GOP’s “big beautiful” budget bill, several of which raised eyebrows during a House Rules Committee hearing.
“What does it mean to strike MAGA and insert Trump? What’s that about?” Rep. Jim McGovern (D-MA) questioned in the Rules Committee meeting.
“Why don’t we call it the Trump Diaper Savings? It could be TDS, because I think the only way you end up with a s*** name like this is if you have TDS,” Rep. Mary Gay Scanlon (D-PA) said.
“You all would be screaming b*** m*** if we named savings accounts after Barack Obama,” Rep. Joe Neguse (D-CO) said.
“5 full pages dedicated to changing the names of different savings accounts and programs from MAGA to Trump… a pointless adjustment and a clear reminder to everyone of the real priorities of this bill,” Rep. Suhas Subramanyam (D-VA) wrote on X (the social media platform formerly known as Twitter).
In a last-minute amendment, House Republicans took it one step further, voting to officially brand the accounts with the president’s name.
The Senate version officially signed on Friday dropped the controversial naming of the account.
A Baby’s First IRA Account
At first glance, Trump Accounts appear to be a hybrid between a custodial investment account and a 529 college savings plan.
Under the proposal, each eligible child born from 2025 through 2028 would receive a $1,000 government contribution at birth.
Parents will have the option to open the accounts for any child under the age of 8 at a bank of their choice, but only newborns will receive the free $1,000.
Parents could then contribute up to $5,000 annually per child; with no tax deduction and direct investments into pre-approved vehicles like mutual funds tracking major U.S. indexes. Money grows tax-free with rules similar to an IRA – withdrawals are taxed like income, plus an additional 10 percent tax penalty on any withdrawals before age 59½ except for certain qualified uses.
There are no income requirements and everyone is eligible, as long as the child is a U.S. citizen, and both parents have Social Security numbers.
Senator Ted Cruz’s Vision for Market Citizenship
The concept is spearheaded by Sen. Ted Cruz and hedge fund manager Brad Gerstner, who argue that early market exposure can foster financial literacy and a pro-capitalist mindset.
Cruz has said the accounts would help turn children into “stakeholders in the free market” by letting them “own a piece of Apple or McDonald’s.”
How the “Trump Accounts” Work
Funds deposited into Trump Accounts grow tax-deferred.
Rules are the same as those of an individual retirement account — withdrawals are taxed like income, plus an additional 10 percent tax penalty on any withdrawals before age 59½ except for certain qualified uses.
Changes After the House Bill was Approved
After the original House Bill was approved, the account underwent several changes in the Senate and the version approved again in the House looks a lot different.
Lawmakers scrapped earlier proposals to give Trump account withdrawals the lower tax rates typically applied to brokerage accounts. Instead, any withdrawals will be taxed as ordinary income rather than at the lower capital gains rate.
Congress also abandoned plans to set specific ages for how the money could be spent; such as for college at 18, starting a business at 25, or buying a home at 30.
Now, beneficiaries can’t access the funds until age 18, and the accounts follow the same rules as traditional IRAs: withdrawals are taxed as income and may face a 10% penalty if taken before age 59½, unless used for certain qualified expenses.
These exceptions include paying for college, coping with disability, recovering from domestic abuse or natural disasters, withdrawing up to $10,000 to purchase a first home, or taking out $5,000 following the birth of a child.
The $17.3 Billion Price Tag and Limited Upside
The Joint Committee on Taxation estimates the program would cost the Treasury $17.3 billion over 10 years.
That sounds substantial until you consider the potential return for individual families.
Assuming no additional contributions, and a generous 7% average annual return, a $1,000 seed would grow to around $3,870 by the time the child turns 31.
It would definitely help children have some financial cushion.
No Tax Deduction, No Real Edge Over 529s For Education
Investors should note that Trump Accounts offer fewer tax advantages than traditional 529 plans.
Contributions are not deductible on federal taxes, although states might add incentives.
The other advantage is 529s have a higher contribution limit. For 2025, a single person has a $19,000 annual limit into a beneficiary’s 529, while married couples can contribute as much $38,000.
But 529s are limited to education, while backers say the new accounts can help their recipients beyond college.
So financial advisers recommend first maximizing the 529s for educational needs and any extra funds can be invested into this new account which can be used by the child as an IRA.
529-to-Roth Rollovers: A Missed Opportunity
Recent legislative changes now allow some 529 plan balances to be rolled over into Roth IRAs; up to $35,000 over a lifetime offering a clear path to retirement investing.
Advisors recommend putting money into a 529 account for higher education or Roth IRA for retirement, since both of those options allow investors to withdraw their money entirely tax-free.
Baby Bonds, Rebranded?
In essence, Trump Accounts resemble the “baby bonds” concept championed by Sen. Cory Booker and Rep. Ayanna Pressley; with a conservative twist.
Whereas baby bonds target children from low-income families and aim to reduce racial wealth gaps, Trump Accounts are universal and lean heavily on private investment rather than public guarantees.
How Trump Accounts Compare to State-Run Baby Bonds
The Trump Account pilot program echoes elements of state-run “baby bonds” initiatives; but with key differences in scope and accessibility.
For instance, Connecticut became the first state to fully implement such a program in 2023 with the launch of the Connecticut Baby Bonds Trust.
That initiative automatically deposits $3,200 into a trust for every child born under the state’s Medicaid program, focusing squarely on lower-income families.
Unlike Trump Accounts, however, Connecticut’s version doesn’t allow additional contributions, and its purpose is more explicitly tied to closing the racial and economic wealth gap rather than encouraging investment in public markets.
Limited Use Cases, Narrow Benefits
The Trump Account now function as IRAs but the contributions do not offer any tax breaks.
While these are logical investment destinations, the narrow range limits flexibility.
Parental Control But With Strings
Parents or trustees would have broad authority over how funds are invested, within limits.
Eligible investments are restricted to passive funds tracking U.S. indexes, and leverage is prohibited. While this minimizes risk, it also limits upside and leaves little room for active management or innovation.
A Nod to Financial Literacy. But How Effective?
Advocates argue that exposing kids to investing early helps build financial literacy and long-term savings habits.
That’s undoubtedly true; but giving a child $1,000 in a locked trust won’t automatically translate to financial education.
Without structured programs, apps, or school-based curricula tied to the accounts, the behavioral impact may be limited.
Parents need to continue providing financial education such as creating a budget, investing wisely, avoiding debt and managing credit scores.
Not a Wealth Multiplier
For middle and upper-income families, Trump Accounts don’t replace 529s, brokerage accounts, or trusts.
For low-income households, IRAs would build significant wealth with the advantage of tax deductions.
Critics Decry Symbolism Over Substance
Politically, Trump Accounts offer a compelling talking point: “Trump is giving your baby a $1,000 investment.”
Critics complain that in financial terms, the program does little to close inequality gaps or promote widespread ownership of capital.
But, it is a great start for investing in kids which has not been done before. Future versions could be used to improve on the concept.
Other Sweeteners in the Tax Bill for Parents
The broader GOP tax bill includes an increase in the Child Tax Credit (from $2,000 to $2,500), a higher standard deduction, and tweaks to estate tax thresholds.
For parents, these provisions may provide more tangible savings than a $1,000 nest egg.
Financial Advisors Caution Clients on Overestimating Value
Financial professionals studying the proposal are already working on managing client expectations.
While a “free” $1,000 is worth taking, Trump Accounts don’t replace more flexible, better-incentivized tools already available for child investment strategies.
A Political Gimmick Could be the Start of Something Bigger
For families eligible between 2025 and 2028, the $1,000 Trump Account is a windfall worth accepting; but not a strategy worth relying on.
As an investment vehicle, it’s unlikely to materially shift long-term economic outcomes.
However, Trump Accounts may set a precedent for federally seeded investment accounts.
The accounts can be used in conjunction with other accounts. While the 529 can be funded by parents for educational expenses, the Trump account can be earmarked for for certain qualified expenses as per IRS guidelines.
If future lawmakers expand contributions, add matching funds, or loosen restrictions, these vehicles could evolve into something more powerful.
As the IRS will issue detailed guidance, parents should work with their financial advisors to determine how these accounts can be used as part of the larger financial planning strategy.
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Retirement Dreams on Hold as 73% of the Sandwich Generation Support Parents and Adult Kids, Survey Finds
If you’ve ever flown on a plane, you know the drill: “Put your own oxygen mask on first before assisting others.” It’s easy advice to hear, but much harder to live by — especially if you’re caring for aging parents and supporting children. Welcome to life in the sandwich generation. Many people in their 40s and 50s face this dual responsibility right when their own retirement savings should be hitting full speed. A new survey conducted by Athene of the Sandwich Generation, found that nearly three quarters (73%) of respondents have adjusted their retirement goals to support their adult children or aging relatives, including: – Delaying retirement (34%) – Using retirement assets to support their family (22%) – Not planning to retire at all (9%) If you’re feeling squeezed from both sides, you’re not alone. Here’s what you need to know to survive and thrive during this overwhelming phase of life.
Treasury I Bond Rates Increases from 3.11% to 3.98% – But with a 1.1% Fixed Rate Locked for 30 Years, Is It Still a Smart Investment?
Inflation has become a significant concern. During the past three years of surging inflation, I bonds offered a safe and attractive investment option. However, with recent lower CPI numbers, the current composite rate for I bonds bought after May 1, 2025 will be 3.98%. The rate has slightly increased from the prior 3.11% but is a sharp decline from the enticing 9.62% annual rate available in May 2022 or even the 4.28% available for bonds purchased before October 31st, 2024. As rates decrease, investors are now considering whether it’s still worth buying Series I bonds.
Trump Promised “No Tax on Social Security”, But Is That What Seniors Are Getting?
President Trump campaigned on eliminating taxes on Social Security benefits, a pledge that won the hearts of many older Americans. But the latest tax bill shows that while the promise remains loud on the campaign trail, the reality in Congress is more complicated. Without Democratic support in the Senate, that promise is unlikely to become reality anytime soon. Republicans have introduced multiple bills in both chambers of Congress to eliminate federal taxes on retirement income, yet the legislation remains stuck, with little indication that Democrats will come on board. Democrats have introduced a bill in the Senate which is more far reaching than just focusing on elimination of Social Security Taxes, but it does not have bipartisan support with the Republicans. The impasse is especially frustrating to many retirees given that the last major bipartisan Social Security reform; wasn’t aimed at all seniors. Instead, it focused narrowly on improved benefits for certain government employees. While that change increased benefits for public workers, it left millions of everyday retirees still paying taxes on their hard-earned Social Security income. This legislative pattern has raised new questions: Why are across-the-board tax cuts for seniors stalling, while targeted relief for government workers drew swift bipartisan agreement?
Trump Promised “No Tax on Social Security”, But Is That What Seniors Are Getting?
Bobby Bonilla Hasn’t Played for Over 2 Decades. Why Do the Mets Still Pay Him?
On July 1st, Mets fans wish each other Happy Bobby Bonilla Day. Why? Because on July 1st, Bobby collects a check of $1.19 million every year from 2011 to 2035. And he has not played for the Mets since 1999. Instead of receiving a one-time payment for $5.9 million, Bobby negotiated one of the best deferred payment deals in professional sports history. This quirky financial arrangement has become legendary among baseball fans, but it also holds surprisingly valuable lessons for retirement planning, compound interest, and smart negotiating.
Bobby Bonilla Hasn’t Played for Over 2 Decades. Why Do the Mets Still Pay Him?
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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