Three Cheers for Trump Accounts
A largely overlooked feature of the One Big Beautiful Bill Act is the creation of “Trump Accounts”. These are child savings accounts seeded and supported by families and employers. In addition to funding from family and employers, the federal government will disburse $1000 into these accounts for those who are eligible. Any child under 18 can hold one, but only those born between January 1, 2025, and December 31, 2028, who are U.S. citizens with a Social Security number, will receive the one-time $1,000 federal contribution. Parents (and others) may add up to $5,000 per year until the child turns 18, with balances invested in a diversified fund that tracks a U.S. stock index. Employers can contribute up to $2,500 annually, and those contributions are excluded from taxable income. If implemented at scale, these accounts could be genuinely revolutionary and potentially reshape both our broken entitlement system and our extended adolescence problem.
Regarding our broken entitlement system, Social Security is under mounting strain. Current projections show the program’s trust fund will be depleted in the early 2030s, at which point benefits would face automatic cuts unless Congress acts. Fearing that future payments may be lower, more Americans have begun claiming Social Security benefits earlier. Meanwhile, the country is aging rapidly, with more than 11,000 baby boomers reaching retirement age every day. On top of that, there are fewer workers per retiree to support the system. The question isn’t really whether Social Security needs a fix, it’s whether our political leaders will agree on one in time, and I for one am skeptical an adequate solution will come about before the projected funding runs out.
Therefore, Trump Accounts can operate as a parallel backstop for younger cohorts whose Social Security benefits will most likely be trimmed, and possibly be eliminated, in the future. The accounts don’t disappear at 18. They persist for life, with the child assuming full control at adulthood. Their structure mirrors a traditional IRA with earnings compounding tax-deferred, withdrawals being taxed as ordinary income, and early distributions before age 59½ generally incurring a 10% penalty (subject to standard exceptions). An account with a $1,000 initial deposit and $200 monthly contributions growing at a 7% annual rate over 30 years would yield a balance of about $254,000. That’s not an unreasonable scenario for many people and would yield a much better result than having that money being put into Social Security. Beyond the dollars, starting kids as investors can build financial literacy and ownership. As Milton Friedman put it, “Nobody spends somebody else’s money as carefully as he spends his own.” The premise is that giving young adults real autonomy over retirement savings will yield better decisions than a centrally managed system.
Trump Accounts also confront a long-running imbalance in U.S. public finance, which is that we spend far more on seniors than on children. The Urban Institute estimates that federal outlays per adults 65+ are roughly six times those per children under 19. That skew shapes both budgets and politics as today’s retirees are supported by current workers while early-life investments are underfunded. By seeding assets for the young, Trump Accounts shift support to the front end of the life cycle, when compounding and skill-building deliver the biggest long-term gains, including a better shot at homeownership. I don’t want to “gut” senior benefits. In fact, Medicare makes sense considering health risks rise with age. Social Security, however, is a pay-as-you-go transfer system whose sustainability depends on demographics. That’s hardly a comforting foundation without extensive reform.
Trump Accounts won’t just change the entitlement system, they may also defeat the broader trend of delayed adulthood milestones, especially for men. The current average age for marriage for men is around 30 years old while for women it’s 28 years old. Those are both stark contrasts to 1980 where the age was around 24 and 22 for men and women respectively. The median age of first-time homebuyers is 38, which is an all-time high. Many forces drive this shift, but shaky early-career finances are a common thread. By seeding assets that compound from childhood, Trump Accounts could give young adults enough confidence and capital to move forward sooner. Although Trump Accounts are focused on retirement, they also include targeted flexibility. For example, there is a penalty exception for up to $10,000 toward purchasing a first home and up to $5,000 around the birth or adoption of a child. Those features, coupled with long-run saving, could ease the transition into family formation and homeownership, improving the match between seniors looking to sell and younger households ready to buy.
Trump Accounts should have been a bipartisan win if we lived in a less-polarized environment. Versions of this idea, often branded as “baby bonds”, have been championed by both Hillary Clinton and Cory Booker. Critics say the money would be better routed to 529s or HSAs, but those are purpose-limited and typically parent-controlled. The point here is ownership and timing. We give every child an account they eventually control, seed it early, and let compounding and responsibility do the work. The more autonomy and early capital we provide, the more likely we are to see financially resilient households and, over time, a federal budget less strained by late-life transfers.
