Advisors Say $1,000 ‘Trump Accounts’ Won’t Benefit Families Who Need Help Most

Are your clients planning on having children? Tell them to hurry it up. 

Inside the Trump administration’s key $4 trillion tax bill is a proposed idea to open accounts for each new baby born in the US until 2028. The so-called ‘Trump Accounts’ are seeded with $1,000 that gets invested in equities and locked up until the child’s 18th birthday. Parents can also contribute up to $5,000 annually. Previously called MAGA accounts, the funds are designed to help parents prepare for their children’s financial futures. But, what do advisors think about the proposed accounts? 

“They are stupid,” said Catherine Valega, an advisor with Green Bee Advisory, adding that the wealthy have plenty of options to save, while the less affluent won’t be able to afford additional contributions.

Hit Me, Baby, One More Time

The idea of funding accounts for newly born children is nothing new. In fact, before the current administration, the accounts were called “Baby Bonds” and have been floated by politicians on both sides of the aisle. Well-known financial advisor Ric Edelman has been a prominent supporter of the idea, and even started a trust product with annuities for babies in 1999. But today, most advisors said the proposed Trump accounts will largely benefit upper-class families who can afford to contribute annually. 

“The real advantage will go to families with enough disposable income to consistently fund the account,” said Edzai Chimedza, a CFP and advisor at Tobias Financial, adding that it’s an attractive tool for upper-middle-class and affluent families, who are more likely to be able to contribute after covering essentials, like retirement savings and emergency funds. 

The accounts aren’t the only savings options out there, either. Who can forget those 529 plans that have grown significantly more flexible over the years and are a great option to save for college, Valega asked. A guardian Roth IRA can also help children jump-start their retirement savings, while helping them get up to speed with the stock market.

Baby Got Tax. For families that can pitch funds into the accounts, it makes sense to stop and think about a client’s intentions, said Sarah Avila, an advisor with VLP Financial Advisors. “If you are eligible to open the account for your baby, it is worth it to get the free $1,000 from the government,” she said. But clients should be aware that  earnings on qualified withdrawals will be taxed at long-term capital gains rates. “If the idea is to save for college, contributing to a 529 plan is more advantageous, from a tax perspective, because the money is tax free,” she said.