Trump Accounts launch: Are they the best investment for parents?
Trump Accounts launch: Are they the best investment for parents?
Trump accounts launched this week as a way to encourage parents to start saving for their children's retirement. The accounts for any U.S. citizen born between 2025 and 2028 come with $1,000 in seed money from the federal government. They're similar to a traditional IRA after that.
(FOX 9) - A new type of investment opened up after July 4 for American kids. They’re called "Trump accounts" and they come with a kickstarter for retirement.
When to start a Trump account
What we know:
The accounts come with free money and financial advisers are all-in on that.
But they say other investments are probably better for any amount of money coming from parents.
If you’re leaving the hospital with a newborn any time between 2025 and 2028, the federal government will give you $1,000 in seed money for a Trump account.
"It's basically free money, take advantage of that," said Nicole Middendorf of Prosperwell Financial.
But financial advisers say that might be the last money you put in the account.
"The strategy for these types of savings vehicles is to really put it away, let the $1,000 grow," said Becky Krieger, managing partner at Accredited Investors Wealth Management.
Trump accounts begin in U.S.
New Trump accounts are now available of children in the U.S. beginning today. FOX 9’s Corin Hoggard has the latest on what you need to know.
What are Trump accounts?:
Dig deeper:
Trump accounts are tax-deferred retirement accounts.
Families can contribute up to $5,000 a year, but that’s not tax-deductible.
Some employers have signed up to contribute up to half the max, and that is tax-deductible.
The money is untouchable until age 18, and there are tax penalties for withdrawals before retirement age.
Situational strategies
Big picture view:
Advisers say other investments probably have better tax benefits or more flexibility or both.
"There's other vehicles that are really interesting for a family to be informed about," Krieger said.
The type of investment you should make depends on how you foresee your kids using the money.
Buying a house
Dig deeper:
If you want them to be able to buy a house, advisers say a Roth IRA is the best bet — if the child earns any money — because of tax benefits.
"The Roth IRA can be used tax-free for their first home purchase, tax-free for higher education," said Middendorf.
If they don’t make money, a UTMA may be the best option.
Paying for college
Dig deeper:
If your goal is to help with college expenses, advisers say the best investment is a 529 account, because in Minnesota, married couples can deduct up to $3,000 in 529 investments.
That’s not true of Trump accounts.
Whatever you do, the earlier in you start the better because it’s pretty true that time is money.
At the average annual return on the stock market, a newborn’s $1,000 Trump account would be worth $329,000 by age 60.
"There's not a magic investment when it comes to putting money away," said Middendorf. "The power is having time in the stock market."
How do I get a Trump account?
What you can do:
You can sign up for Trump accounts here.
There’s also money available for any kids up to 18 from the Dell family and possibly from SpaceX leadership — and they’d be first-come, first served with some geographical limitations.
What we don't know:
Whether future laws could change the tax structure around Trump accounts is unpredictable. And the promised investment from SpaceX leadership has not been formalized yet.