Trump Accounts expand to millions of children, but new rules raise questions

Amna Nawaz:

The Treasury Department has now created Trump Accounts for every eligible child, automatically enrolling more than 60 million children. That adds to the roughly seven million children whose parents already opted in since the program launched this July.

But the expansion also comes with changes to how the program works. Donors can now donate individual stocks to the accounts, stocks that families can't choose or reject and must keep for five years. Direct donations can also be made to specific groups of children based on location or age.

For more on all of this, I'm joined now by Wall Street Journal reporter Richard Rubin.

Good to see you. Thanks for being here.

Richard Rubin, The Wall Street Journal:

Hi. Thanks for having me.

Amna Nawaz:

So how different are these new rules, these changes that came with the enrollment expansion from what was originally in place with Trump Accounts?

Richard Rubin:

Oh, they're totally different.

So, auto-enrollment really expands this program and makes it a universal savings account for kids. So parents who didn't sign up originally who may not have wanted one or didn't know about it, everyone is now in it, so it's universal for kids with Social Security numbers.

And then the stock donations are also a big change. The original idea and what Congress had written was that this money was going into low-cost index funds, and that's what parent contributions and employer contributions still go into.

But now you have these donors who are able to put in individual stocks and keep them in there for five years.

Amna Nawaz:

And just to clarify, when we say donors here, who are we talking about?

Richard Rubin:

So money has to go through a nonprofit and the Treasury Department has to approve any money that can come in. But what everyone is expecting is for wealthy individuals to do this.

So we have seen this happen with cash donations. Michael Dell and his wife, Susan, have donated more than $6 billion dollars in $250 chunks. Those are cash donations, not stock donations. But Treasury officials have said that they expect more of those to come and that the change to stock donations will encourage some of those donors who might not have otherwise given.

Amna Nawaz:

Well, so this is part of the argument from the Treasury Department, right, that it will incentivize private donors and companies to contribute more. They also say that these kind of automatic enrollment benefits children in lower income groups. Is there evidence of that? Is there data to back it up?

Richard Rubin:

Yes, there's definitely been data over time in that lower-income households may be more confused by this financial product, may not know about it, and may not -- may be busy with other things and not necessarily enrolling their kids.

And so the automatic enrollment is something that I think has been sought on the left and the right. I think, for progressives, they really see auto-enrollment as a way to expand access for lower-income households to make sure every kid has starting with something in an investment account that turns into an IRA.

For conservatives, I think it ends up being much more of a wealth-building, financial literacy kind of teaching moment. And that's, I think, what's drawn donors and support from lawmakers on that side.

Amna Nawaz:

I want to ask you more about these individual stock donations. Now, as we mentioned, the families have to keep these stocks. They can't choose them. They can't reject them. They have to hold them four or five years. The Treasury Department says this is going to help families to feel more invested in the companies.

What do the experts you talk to say about this and what could be problematic here?

Richard Rubin:

Yes, so there are definitely some concerns that have come up.

The Treasury Department has signaled that they're open to rules that might allow opt-outs and they have asked for comments on those. But for now, there are no opt-outs. And so you have some odd situations that could emerge.

The Treasury Department really did say the goal of this was to encourage more donations because they wanted kids and their families to have a stake, not just in America broadly, investing in America, but really in these particular companies.

Amna Nawaz:

Yes.

Richard Rubin:

So you could imagine a whole bunch of scenarios. We can go through some.

Amna Nawaz:

Well, what are some of those scenarios?

(CROSSTALK)

Richard Rubin:

So, you could imagine something where it becomes part of a political or policy debate. If a company is able to ensure that every 9-year-old in a particular state owns a share of their company, then when the state says we want to increase regulations, we want to raise your taxes, you could see companies or CEOs dangle this as an incentive or a reward.

So, say a company is trying to get approval for a data center. They could say, oh, well, if you approve this, we will put two shares of stock in every kid's account in the town, and which auto-enrollment allows them to reach more broadly.

And I think you also will have issues with conflicts of interest for -- again, because it's so broad and automatic, for federal regulators, state regulators, people who have policies and rules at their employers that prevent their minor children from owning stocks in entities that they're responsible for now may have those.

And so there's a number of things that will come up and that may come up and that the Treasury Department is going to have to think about as these roll out and as they approve each of these donations.

Amna Nawaz:

Since the Trump Accounts launched through to the automatic enrollment expansion that was earlier in October, there were only about seven million sign-ups, as we mentioned. What do you make of those numbers? I mean, I know this is a new kind of program, but was that low? Do you feel like there's hesitation in signing up for these?

Richard Rubin:

So it was relatively high in one subgroup, which is families that have newborns, kids born from 2025 or 2026, because the accounts come with $1,000 from the government if you open it up. And there was pretty good take-up among that group.

I think for some people it was just an education thing, not knowing about it. For other people, they didn't necessarily want to contribute, right? So if they weren't going to put money in, the government wasn't going to put money in, they weren't yet hearing whether their employer was going to put money in, they weren't going ahead and creating it.

And so that kind of left a narrower pool for these other donors to come in. And then I think for some of the population, the fact that these are called Trump Accounts is a problem for people, and they don't want to be involved with something that has the president's name on it.

So you have seen some banks and financial institutions refer to these by their other name, which is the Section 530(a) accounts.

Amna Nawaz:

OK, about 30 seconds left, but I have to ask, because of these new rules, the new language and some of the new rules around the expansion, do you expect legal challenges to this?

Richard Rubin:

So that's a very open question. I think it's often difficult to challenge tax rules. You would need -- the people who would be opposed to this would need to find someone who's harmed in some way by these donations coming in. And these really are donations.

So these are -- it's not like -- there are some strings attached, but there is a real gift that's happening in real wealth building that's going to happen, at least in this undiversified way, for these households.

Amna Nawaz:

Richard Rubin, Wall Street Journal, great to have you here. Thank you.

Richard Rubin:

Thank you.