More information needed on Trump baby accounts, analysts say

More details are needed before the strategy and impact associated with the so-called “Trump baby accounts” can be fully known, analysts say.

Speaking during their regular “Inside the Beltway” webinar last week, Fred Reish and Brad Campbell, partners at Faegre Drinker law firm, said the accounts certainly give advisors another tool to serve families.

Included in the federal budget recently signed by President Donald Trump, the accounts would provide a $1,000 tax-deferred investment account for American babies born during his second presidency.

Details of the plan are vague, but essentially every U.S. citizen born after Dec. 31, 2024, would receive a one-time contribution that will “track the overall stock market.” The accounts would be controlled by the baby's parents or guardians and would allow for additional private contributions up to $5,000 per year.

The accounts are expected to start next July.

“[W]hat I think a lot of advisors are going to have to do for their individual clients is figure out, Is this actually the best vehicle to use for, let's say, education savings, or would a 529 [plan], or something of that nature be more effective?” Campbell explained. “It's not going to be a one-size-fits-all answer as to the best way these Trump accounts can be used."

The accounts can only be utilized in an "eligible investment," the legislation states, which includes such safe options as a mutual fund or exchange-traded fund (ETF) that tracks an index like the S&P 500.

The fund cannot have annual fees and expenses of more than 0.1% and the index it tracks must comprise "equity investments in primarily United States companies," the legislation mandates.

'There's no room in there'

The turnover at the Internal Revenue Service might slow down the issuance of key guidance that will fill in the details of the new program, Reish noted.

[W]ith that limitation on 10 basis points, on the expense ratio of the investment that almost suggests that this would be something that a financial planner might recommend or a person’s account might recommend,” he added. “Because there's no room in there for a commission.”

With no additional contributions the initial $1,000 would be worth about $4,000 upon the recipient’s 18^th birthday, factoring in annual 8% growth. Recipients can access the account at age 18, or it automatically converts to a traditional Individual Retirement Account.

The tax impacts are not particularly advantageous, the nonprofit Tax Foundation said. Trump Accounts “provide a more limited and restricted tax benefit than existing saving incentives, such as 529 accounts," the group noted.

The Trump account benefit has only been known for a few weeks, Reish said, and there are many more details to come.

“It’s almost a year away so we’re going to learn more,” he said. "There’s no rush to the finish line here.”

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