From Yahoo Finance: 2025-05-22 12:17:00

A new bill proposes “Trump accounts” for newborns, prefunded with $1,000 for saving and investing. Financial advisers caution that besides the seed money, the benefits are limited compared to other savings options. Parents can open accounts for kids under 8, but funds must be used for specific purposes.

The tax advantages of Trump accounts are limited, with investment returns taxed as long-term capital gains for approved purposes, such as education, starting a business, or home down payment. Money not used for these purposes will be taxed as ordinary income. Children can access savings from age 18 to 31, with restrictions.

The proposal aims to engage kids in saving and investing early, but critics argue the accounts are less beneficial than other options like 529 accounts or Roth IRAs. The cost to the government is estimated at $17 billion over 10 years. Restrictions may limit the value of the program, making it less attractive to families.

The idea of prefunded accounts for children is not new, with progressives proposing “baby bonds” to address wealth inequality. Republicans see the Trump accounts as a way to promote investing and capitalist values. Critics question the usefulness of the program, ranking it lower than other tax-free savings options.

Read more: ‘Trump accounts’ for newborns passed the House. Here’s why financial experts don’t like them.