How the Investment ‘Trump Accounts’ Could Affect Low-Income Americans
Written by
Alan Joseph
Edited by
Jenna Klaverweiden
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Upward economic mobility in the United States has become difficult over the last few decades. For low-income families aiming to improve their financial situation, the challenge can be even more burdensome.
This is where “Trump Accounts” could play a role. Here are some ways Trump Accounts could impact low-income Americans.
What Are Trump Accounts?
The White House described Trump Accounts as “a new, historic savings tool made possible by President Trump’s landmark Working Families Tax Cuts Act.”
According to Linda Jensen, a certified financial fiduciary with Heart Financial Group who specializes in retirement income planning, Trump Accounts are designed to give future generations a “financial head start at birth through long-term investing rather than short-term assistance.”
Jensen explained that the seed deposit ($1,000) for eligible children “is intended to grow over time through compound returns,” which can be achieved through low-cost, diversified, market-based investment options linked to U.S. equities.
Eligibility: Who Gets the $1,000?
The Wall Street Journal reported that children under 18 who have a valid Social Security number and U.S. citizenship are eligible for an account. Furthermore, as part of the pilot program, children born between Jan. 1, 2025, and Dec. 31, 2028, will be granted seed funding of $1,000 from the Treasury Department.
How Could Trump Accounts Help Low-Income Families?
Access to capital is one of the biggest barriers to building wealth. While a one-time seed of $1,000 may not seem like much, it can blossom into a meaningful amount through sustained compound growth.
Jensen noted that based on long-term historical market returns, if the initial grant is invested at birth, “it can compound into several thousand dollars by early adulthood.” That’s without counting the $5,000 limit parents and relatives can add every year.
Through disciplined investing and letting time in the market do its work, Jensen added that the funds could be used as a launchpad to start a business or pursue education or job training, as opposed to taking on costly debt, which many low-income households resort to.
Ray Dalio, founder of Bridgewater Associates, agreed on the benefits of investing early. “At an early age, I was exposed to the stock market, and it changed my life,” Dalio said. He recently announced plans to donate $250 each to 300,000 eligible children in Connecticut, as reported by The Hill.
Simply put, small contributions over many years can add up.
Trump Accounts’ Shortcomings for Low-Income Families
Despite the benefits of this new program, which may help many Americans, it does have its limitations.
Critics like the Urban Institute argue that households with limited means lack the financial capital to contribute at the same levels as higher-income households, as evidenced by the fact that nearly a third of households have less than $2,000 in emergency savings. “Should these households need to use their Trump accounts to cover an unexpected expense, they would be subject to a 10 percent excise tax,” the Urban Institute noted.
Key Takeaways
Trump Accounts are designed to provide a financial head start for low-income households who otherwise would start with nothing. Rather than taking on debt, the initial seed funding could create opportunities and provide the next generation with greater financial stability.
At the same time, the disparity between low-income families and wealthier households will result in different outcomes. Ultimately, Trump Accounts should be viewed as one tool among many to build wealth, not a standalone solution.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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