Key Takeaway
The new Trump Accounts give $1,000 to children born between 2025 and 2028, and they allow up to $5,000 in annual contributions.
A Goldman Sachs study found that consistent contributions from childhood to age 21 could boost retirement savings by as much as $340,000 at age 65 compared to someone who starts saving at age 21.
While the accounts offer tax-free growth and withdrawals are tax-free at age 59½ or older, experts warn that their complexity could discourage some families from actually using them.
Trump Accounts could provide a big boost for peoples’ future retirement savings, a new Goldman Sachs study finds.
The One Big Beautiful Bill Act, which was signed into law in July, established Trump Accounts, a type of tax-advantaged account that provides $1,000 to babies born between 2025 and 2028. Parents without newborns and those with children under the age of 17 can also open one for their child but they will not receive the $1,000 deposit.
Goldman Sachs estimates that if $500 were contributed annually to a Trump Account from ages 1 through 20, a person would have about $340,000 worth of additional retirement savings at age 65 compared to someone who started saving at age 21. The researchers assumed that starting at age 21, people earn a $50,000 starting salary (with a 2.5% annual raise) and put away 8% of their income every year—while also receiving a 5% match from their employer. The annual rate of return in their calculations was 6.5%.
“We wanted to see what the impact would be if somebody who saves a modest amount—$500 per year—and basically uses that to kickstart their retirement savings,” said Chris Ceder, a Senior Retirement Strategist at Goldman Sachs Asset Management. “Compared to the person who doesn’t have that savings, it’s a 14% benefit.”
How Are Trump Accounts Supposed To Work?
Trump Accounts have a $5,000 annual contribution limit, and employers, parents, and others are eligible to contribute. Employers can contribute up to $2,500, which is considered tax-deductible.
“It’ll be interesting to see how it evolves, and to what degree it is taken up by businesses as a new fringe benefit offering,” said Will McBride, the Chief Economist at the Tax Foundation, a nonprofit think tank.
Money grows tax-free over time, and once a child turns 18, the account turns into a traditional IRA and will be subject to those tax and withdrawal rules. People will have a limited menu of investment options in the account, primarily low-cost mutual and index funds for American stocks.
What This Means For You
Babies born between 2025 and 2028 are eligible to receive $1,000 worth of seed funding in a Trump Account. These accounts convert to IRAs once a child turns age 18 and can be used as another means to score tax-free growth. However, there’s still some regulatory guidance that needs to be released before parents can open accounts for their children.
McBride notes that while these accounts may encourage more people to participate in the financial markets, the complexity of them could deter people.
“It has potential. But I do think that there’s so many other ways to save on a tax-advantaged basis, [and] it’s already complicated for people—they don’t know what to do,” McBride said.
Currently, parents who want to take advantage of tax-free growth can also consider opening a 529 savings plan, which allows people to invest money that grows tax-free when used for qualified educational expenses, like tuition and fees.
Another option is a Roth IRA. However, in order to open this account, a child must have earned income. This means that a child who has a part-time or summer job, like scooping ice cream or selling clothes at a store, could be eligible to contribute up to $7,000.
For now, parents will have to wait to open a Trump Account.
“We expect guidance very soon from the Treasury Department explaining how the $1,000 federal contribution will be implemented as well as details on how parents will be able to set up and contribute to accounts for their children,” said Carl Breedlove, Lead Tax Research Analyst with The Tax Institute at H&R Block.
