Trump bill includes $1K investment account for newborns

A nearly overlooked feature in President Trump’s “One Big Beautiful Bill” would provide a $1,000 tax-deferred investment account for American babies born during his second presidency.

Trump said the accounts would be fully funded through reforms in the budget bill and “will afford a generation of children to experience the miracle of compound growth and set them on a course for prosperity from the very beginning.”

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.

"This is a pro-family initiative that will help millions of Americans harness the strength of our economy to lift up the next generation. And they will be getting a big jump on life, especially if we get a little bit lucky with some of the numbers and the economies into the future," Trump said, during a White House roundtable with prominent CEOs, including those from Uber and Goldman Sachs.

"In addition to the substantial financial benefits of investing early in life, extensive research shows that children with savings accounts are more likely to graduate high school and college, buy a home, start a business, and are less likely to be incarcerated,” the president said. “Trump Accounts will contribute to the lifelong success of millions of newborn babies.”

Along with the latest financial incentive, the administration has been taking steps to help curb declining birth rates.

Earlier this year, Trump signed an executive order expanding access to in vitro fertilization and the Transportation Department said it was giving funding precedence to communities with higher-than-normal marriage and birth rates.

'Baby bonus' of $5,000 also being considered

The White House is also reportedly looking at a proposal to give women a “baby bonus” of $5,000 to have more children.

The proposal, along with the sweeping budget bill, is now with the Senate, which will likely insist on many changes as it attempts to win passage by July 4.

As the CEOs in attendance at the roundtable expressed support for the measure, many managers and investment consultants needed more information before declaring it a good idea, and some offered explicit suggestions of what should be done with the $1,000 investment.

Robert R. Johnson, professor of finance at the Heider College of Business at Creighton University said it should be a no-brainer.

“Very simple,” he said. “Put the entire $1,000 in a low-fee, broadly diversified equity index fund that tracks a major market index such as the S&P 500 or the Russell 1000.”

Since 1926, Johnson said, the average annual return on a large capitalization stock index is 10.3%, while investments in long-term government and long-term corporate bonds have, on average, grown annually by 5.7% and 6.2%, respectively.

“For investors with a long time horizon, bearing the risk of the equity market is appropriate,” he said. “Ironically, one of the most common mistakes made by investors is taking too little risk, not too much risk.”

Fees should be considered

Investors, however, should pay attention to the fees charged by any mutual fund or ETF they are considering investing in. Minimizing fees and transaction costs ensures that more of the investor's cash is being put to work. Just as stock market returns compound over time, the deleterious effects of high fees and transaction costs also compound over time.

“If this path is pursued by the Trump Administration, the funds should not be able to be accessed until the child turns 18 years of age,” said Johnson “One of the benefits of such an initiative would be that I believe many people would be introduced to investing and the power of compounding.”

There may be tax implications that would make the plan less attractive, according to some. Financial analyst Nancy Butler, who suggests putting the $1,000 in a no-fee certificate of deposit that can protect principal, says she has concerns about putting a child’s account in tax-deferred investments.

“A child typically does not have an income tax problem, especially if all they have is $1,000,” she said. “If you grow these funds and are able to add to the account, the tax-deferred earnings over many years can create a tax problem for the child later when the funds are withdrawn.”

She said it might be better to file a tax return for the child each year to claim any taxable earnings, as there would likely be no income tax due.

“Then, when a withdrawal is made when the child is an adult, there would be little to no income tax to pay since it would have already been claimed each year,” she said.

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