How 'Trump accounts' for children work, and who will benefit most

William Brangham:

You may have heard in the last couple of weeks about these new savings and investment accounts for kids known as Trump Accounts. They recently got a big boost from a philanthropic donation that's among the largest ever delivered directly to Americans.

The accounts are now available and the accounts are first expected to open next May. And the question is, can they deliver the benefits over the long haul that are being promoted?

Our economics correspondent, Paul Solman, dug into that question.

President Donald Trump:

Trump Accounts will be the first, I guess you could say, real trust funds for every American child.

Paul Solman:

To which tech billionaire Michael Dell added:

Michael Dell, CEO, Dell:

We believe the smartest investment that we can make is an investment in children.

Paul Solman:

So what exactly are these so-called Trump Accounts? Part of this year's One Big Beautiful Bill Act, they're tax-advantaged savings accounts available for every American child up to the age of 18, and parents can put in up to $5,000 annually.

For kids born between 2025 and 2028, Uncle Sam salts away $1,000 no matter what parents do. And all parents have to do is opt in through a tax form. Moreover, other philanthropists, employers and states are invited to add to the accounts as well.

Susan and husband Michael Dell are the first philanthropic contributors of many, Brad Gerstner thinks.

Brad Gerstner, Entrepreneur:

Moms and dads adding five, 10 bucks a week, kids saving a little money in the summertime. Philanthropists like the Dells, states like the state of Texas have said they're going to add $1,000 to these accounts.

Paul Solman:

Silicon Valley entrepreneur Brad Gerstner helped make the idea a reality.

Brad Gerstner:

The objective here is to get the 70 percent Americans who feel left out and left behind by capitalism into the game, to make everybody a capitalist from birth, sharing in the great upside of the American economy.

Woman:

U.S. savings bonds, now watch how they grow.

Paul Solman:

Now, putting money away for a kid was pretty common back when folks like me and Teresa Ghilarducci were babes in the woods.

Teresa Ghilarducci, Economist:

I used my own example of what happened when my grandmother gave me a little baby bond.

Paul Solman:

She eventually became a prominent economist, a left-wing one, who's long promoted something like government trust funds from birth. She even wrote a proposal for them.

Teresa Ghilarducci:

Along with Kevin Hassett, who's on the other side of me on the political spectrum.

Paul Solman:

Kevin Hassett, President Trump's top economic adviser. Given her politics, how could she pair up with him?

Teresa Ghilarducci:

We came together as economists, and we know that wealth gives people security and power.

Paul Solman:

She and Hassett, despite their different politics, have now been meeting with Brad Gerstner.

That comes as no surprise to early-wealth-building expert Ray Boshara.

Ray Boshara, Aspen Institute:

I have been working on this idea for 20 years and it's been bipartisan over those 20 years. It's important to remember that the bottom half of the population owns only 2.5 percent of the nation's wealth and only 1 percent of stocks and bonds. We have a long way to go to build wealth for the bottom half of the population.

Trump Accounts, designed properly, can do that.

Paul Solman:

Designed properly. But that's only the first problem, says policy expert Amy Matsui.

Amy Matsui, National Women's Law Center:

We already have extremely significant wealth gaps by income, by race, by gender. And the way that this policy is structured, it's not going to narrow them. It has the potential to widen them.

Paul Solman:

How so?

Amy Matsui:

Because the practical aspects of these accounts will mean that the families that are very well off will benefit much more than anybody in the bottom 90 percent. Most families will not be able to contribute the $5,000 for the tax advantage.

A family who's been able to steadily contribute the maximum would have almost $200,000 in assets. And, in contrast, a family that has the $1,000 and has the 6 percent rate of return may have something more along the lines of $2,000 or $3,000.

Paul Solman:

But Teresa Ghilarducci remains hopeful.

Teresa Ghilarducci:

The Trump Accounts surely can be restructured.

Paul Solman:

But here's a real question: Will they be?

Teresa Ghilarducci:

The technocrats around populist policies would absolutely endorse a tweak of these accounts so they don't just serve the top 1 percent or top 10 percent.

Paul Solman:

Her tweak of choice, eliminates tax advantage for families earning over $250,000 per year to make the program more progressive. She expects Brad Gerstner will be sympathetic. And to listen to him, he may be.

Brad Gerstner:

I started this when my oldest child was 13 years old coming out of COVID-19, 2021. And I showed them the custodial accounts that I had opened at birth and added to over the years. And they had compounded into a fair bit of money. And my oldest son, Lincoln, said to me: "Dad, this is incredible. But what about all the other kids who don't have these?"

And that really was the conversation around our dinner table that led to the birth of Invest America.

Paul Solman:

And now here's another problem, a teenager and money. What happens when he or she turns 18 and suddenly there's a windfall?

Teresa Ghilarducci:

I used to be a Boy Scout counselor for the Personal Finance Merit Badge. And I talked to many teenage boys over the years about their finances. I bet that 90 percent of the teenagers that you talk to will say that they would buy a car or somehow fix their car.

Paul Solman:

What did she do with the grandma bond?

Teresa Ghilarducci:

The bond that my grandmother gave me was cashed in to pay our back rent.

Brad Gerstner:

As a father of a 17-year-old and a 14-year-old, I think about that all the time.

Paul Solman:

And so the new law tries to address the problem, he says.

Brad Gerstner:

At 18, kids can use up to 25 percent of this to buy a home, start a business, go to college. If they don't use the money for that purpose, it automatically rolls into an IRA and is subject to the IRA rules. So, yes, you can take it out, but it will be subject to a stiff penalty if you take it out at that point in time.

Paul Solman:

But college? That isn't for most Americans, right?

Teresa Ghilarducci:

Two-thirds of people don't go to college. And so if they take the money out to buy a car, they have to pay a penalty. So you're actually penalizing people who don't go right from high school to college. And so that has to be changed.

Brad Gerstner:

They can use this money to go to a trade school. They can use this money to study a profession that isn't a typical four-year education, community college, to start a small business.

Paul Solman:

OK, but what about this potential final snag?

Amy Matsui:

Trust in government agencies is pretty low. And for families who don't have a lot of financial literacy or a portfolio of their own, they may be unwilling or reluctant to take the steps to open accounts for their children, even if they could receive that $1,000 of seed money from the government.

Paul Solman:

Brad Gerstner says he's keenly aware of the problem.

Brad Gerstner:

Failure for me would be if we had a bunch of accounts that were not claimed by the bottom third of the economic ladder. We have to make sure that we make it seamless for these people to know about the accounts, to get excited about the accounts and to claim the accounts.

Paul Solman:

So what's the bottom line right now? Pitfalls galore. But these accounts are, says longtime proponent Ray Boshara:

Ray Boshara:

The down payment on a big idea that can and should be improved over time. And it's important to look at history here. Social Security, one of our most successful social policies, started out largely excluding women and minorities. But, today, it's one of the most inclusive, successful programs that we have.

Teresa Ghilarducci:

These Trump Accounts, since they are completely wide open for an 18-year-old to spend, will not achieve the goals that right now President Trump and Michael and Susan Dell say they want it to achieve. It needs reform.

Paul Solman:

But better than nothing?

Teresa Ghilarducci:

Better than nothing.

Paul Solman:

And if reforms do happen in myriad ways and if money pours in from myriad sources, potentially much better.

For the "PBS News Hour," Paul Solman.