6 Reasons the Trump Savings Account Falls Short

Trump Savings Accounts (formally part of the One Big Beautiful Bill Act, or OBBBA) are a proposed program to establish federally backed, tax-deferred investment accounts for children.

An eligible child born between Jan. 1, 2025, and Dec. 31, 2028, will receive a one-time $1,000 seed deposit from the federal government.

In addition, family members and others can contribute up to $5,000 per year (indexed for inflation), and employers may contribute up to $2,500 per year (which is not included in the employee’s taxable income).

Contributions are not tax-deductible, earnings grow tax-deferred, and withdrawals upon distribution are taxed as ordinary income.

While the concept of a government-funded nest egg for newborns sounds appealing, a close examination reveals significant flaws—ones that could be overcome by other tax-advantaged vehicles. Here are six reasons to be skeptical of the Trump accounts.

1. The Program Faces a Budget Cliff, Potentially Excluding Millions of Newborns

The proposed funding for the Trump Savings Account seed money is not a dedicated, permanent allocation. The initial $17.5 billion budget estimate appears to cover only four years and is not guaranteed to be renewed. Thus, a future Congress could easily fail to refund the program, meaning children born after the 2028 cutoff (or even within the pilot period) could be left without the initial deposit.

2. Implementation Is Uncertain and Restrictive

Unlike 529 plans or IRAs, the Trump account lacks the established regulatory and operational framework needed for implementation. Since the program is new, many details regarding withdrawal taxation, eligibility nuances, specific investments allowed, and the logistics of the government opening and tracking millions of accounts remain unsettled. Put simply, it is impossible to open a Trump account right now.

3. The Tax Treatment Is Inferior to Existing Accounts

The core tax structure of the Trump account could prove costly. Since the Trump account is merely tax-deferred, all investment gains (growth, dividends, and capital gains) are taxed as ordinary income upon withdrawal in the future. So, for example, an 18-year-old withdrawing a substantial sum for college must include that amount in their income for the year. This large lump sum could push them into a higher tax bracket, significantly reducing the net value of their savings.

4. The $1,000 Seed Is Too Small to Be Transformative for Low-Income Families

The accounts fail to address wealth inequality because the primary growth driver is private contributions, not the government seed money.

If a low-income family cannot afford to contribute anything beyond the $1,000 government seed money, the total balance is projected to grow to only about $5,800 by age 18. This is a minimal contribution toward financial stability.

However, a wealthy family that maxes out the $5,000 annual contribution for 18 years could see the account grow to an estimated $303,800 by age 18. Clearly, the program is structured to subsidize savings for those who already have the capacity to save, rather than meaningfully closing the wealth gap.

5. A 529 Plan Is Superior for Education Savings

For parents whose primary goal is saving for college (or K-12 tuition), the 529 plan offers better tax treatment and a more established infrastructure. With a 529 plan, although contributions are not deductible, withdrawals are tax-free at the federal level (and often the state level) when used for qualified education expenses. Additionally, anyone can open a 529 plan and name a beneficiary. There are no income limits for contributors.

6. A Roth IRA Is Better for Flexible Long-Term Savings

For a child who earns income, the Roth IRA offers the ultimate combination of tax-free growth and withdrawal flexibility. Like a 529 plan, Roth IRAs are funded with aftertax dollars, and withdrawals—including income and growth—are tax-free. Unlike 529 plans, after five years, Roth withdrawals can be taken at any time and for any reason, not just limited to education expenses. Note that only individuals (including minors) with earned income below certain modified adjusted gross income, or MAGI, limits can contribute. For 2025, the MAGI phase-out threshold for a full contribution for single filers starts at $150,000.

Better Savings Options

Any time the government offers free money, you should take it. If opening up a Trump account means your newborn will get $1,000, take advantage! You’ll have to wait until the government figures out how to do that. In the meantime, for putting aside your own money for kids, consider options that offer better tax advantages, such as a 529 plan or Roth IRA.