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Over the next few years, millions of babies born in the U.S. will get a thousand dollars each from the federal government. The money will be in a Trump Account. It's a pilot program created by the One Big Beautiful Bill that recently became law. But how should parents use these accounts? NPR's Bill Chappell asked the experts.
BILL CHAPPELL, BYLINE: For financial advisers, one benefit of a Trump Account is easy to spot.
MICHAEL REYNOLDS: I'm going to take the thousand dollars, definitely. Nothing wrong with that.
CHAPPELL: That's Michael Reynolds, a certified financial planner at Elevation Financial near Indianapolis. Kids who are U.S. citizens born from this year through the end of 2028 will get an account with $1,000 in seed money. The plan is to grow it in investment funds that track U.S. market indexes. After that first contribution, Reynolds says, the benefits of a Trump Account fade a little.
REYNOLDS: You know, it's a tax deferred account, which is nice, but it does get taxed at capital gains rates when you withdraw from it.
CHAPPELL: Parents and others can contribute up to $5,000 each year, but that money is not tax deductible. An employer can also chip in for their employee's child. To get the best tax savings, kids with a Trump Account should spend the money on things like college tuition, starting a small business or buying their first home. They can withdraw half the money the year they turn 18.
ALEX BORGARDTS: At age 25, they can then withdraw the remaining amount for the same qualified expenses.
CHAPPELL: That's Alex Borgardts, cofounder of Next Bloom Wealth near Kansas City, Missouri. All the money has to be taken out by the year the account holder turns 31. Experts say, in contrast to the Trump Accounts, other savings options, like a 529 education account, allow for tax-free withdrawals. Ashley Dickson is the other cofounder at Next Bloom. She says families can prioritize different accounts based on their goals.
ASHLEY DICKSON: So it's not a - I have to contribute to one or the other. It's taking the amount that you can afford and maximizing it based on what the knowns are today with the flexibility of changing tomorrow, couple of years from now.
CHAPPELL: So how much might a thousand dollars in a Trump Account grow in 18 years? Michael Reynolds punches a standard growth rate into his compound calculator.
REYNOLDS: You fast-forward 18 years at an 8% rate of return, that's going to give you just shy of $4,000.
CHAPPELL: But if families contribute the maximum amount for 18 years at the same rate of return, the total can be much bigger - roughly $190,000. Bill Chappell, NPR News.
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