Why we won't be investing in the Trump Accounts

Everything you need to know about the new baby savings accounts + our take on this

Congress and President Trump recently passed the "One Big Beautiful Bill" and as a tax professional, there is a lot to unpack there, but I wanted to let you into a conversation Daniel and I had the other day about the new “Trump Accounts”.

What are Trump Accounts?

My friend Anastasia put together this great overview of the Trump Accounts if you want more detail, but overall, it's kind of like a 401(k) for kids, and instead of using the money for retirement, your kids can eventually use it for buying their first home, starting a business, college or professional training.

From my understanding, the government will put $1,000 into an investment account when a baby is born for the next eight years. Parents, guardians, relatives, employers (of the parents / guardians) and non profits can contribute up to $5,000 per year (indexed for inflation) into this account. Contributions are made with after tax funds, which means contributions and distributions are taxable.

Parents can open a Trump Account with any bank or financial institution (if it meets the criteria outlined in the bill, which most major banks should). You likely won't be able to register for this until early 2026. These accounts are available to babies born between January 1, 2025 and January 1, 2029 and one of the parents must have a valid Social Security Number. If you don't opt in, the government will create the account for your kids (allegedly).

Any money contributed into the account will be invested in an index fund following the S&P 500. Historically, the annual return on these funds averages around 10%. The Milken Institute estimates that $1,000 invested in a broad equity index fund could grow to an average of $8,300 over 20 years.

The money can't be withdrawn until the baby turns 18. At age 18, up to 50% of the funds can be used for higher education, professional training, starting a business or a down payment on a first home. At age 25, the full balance can be used for these same purposes. At age 30, the funds can be used for any purpose.

All withdrawals will be taxed at a capital gains tax rate. Currently, the long-term capital gains tax rate is 0 - 20%, depending on your income. Who knows what the capital gains tax rate will be in 18+ years once kids begin withdrawing this money. Similar to 401(k)s, there are penalties for early withdrawals or for non-qualified withdrawals - those will be taxed as ordinary income (so, the same as your wages) + a 10% penalty.

How are Trump Accounts different from 529 Plans?

529 Plans are regulated at the state level, so rules vary by state, but overall, here's how 529 Plans are different from the Trump Accounts:

• The government doesn't contribute anything to 529 accounts

• Contribution limits vary by state

• Currently can only be used for education expenses

• Withdrawals are tax-free at the federal levels (and often at the state level)

• Some states offer tax deductions or credits for contributions

• You can invest in a wider variety of stocks and bonds

• More flexibility: you can change beneficiaries or roll over unused funds into a Roth IRA without penalties

The Big Beautiful Bill makes some changes to 529 Plans:

• Qualified expenses (what you can use the funds for) are expanded to include certain K-12 (public, private and religious) school costs

• Raises the per-beneficiary limitation from $10,000 to $20,000 for taxable years beginning after December 31, 2025.

For full transparency, we have not yet opened up 529 accounts for our kids, nor do we plan to at this time, for similar reasons as I’ll talk about below why we’re not investing in the Trump Accounts + at this time, we’re leaning towards home schooling our kids and who knows if our kids will even have college as an option in 15 years, so although useful for some families, 529 plans are not for us as of now!

Why the Trump Accounts are not going to be part of our family's investment strategy

Initially, the Trump Accounts sound great. Even, at a minimum, $8,000 (minus tax at up to 20% at today's capital gains tax rates), is better than nothing for a young adult.

But as Daniel and I dug into this deeper and talked about if this fits what we're building for our family and kids, we decided the Trump Accounts won't be part of our investment strategy. The government may open this account for any kids we may have in the next eight years, but as of now, we likely won't be investing in these accounts.

I'll explain our thinking a bit more, but please note that this is (1) not investment or tax advice and (2) what works for our family may not be work for yours, and vise versa, so do what is best for your family and children!

Our family financial strategy is to steward and grow what God entrusted to us as God gives us wisdom to. It’s not money we’re after. It’s a thriving marriage, a purposeful life and an enduring legacy without the financial stress. For us, this looks like being a position where:

1. We can live a simple, quiet life working side by side as a family and not having to rely on anyone financially (including employers, the government or banks) - see 1 Thessalonians 4:11-12

2. We are able to leave an inheritance to our children so that they build on to what we've built instead of starting from zero (or in the negative, as we did with student loan debt) - see Proverbs 13:22

3. We have the financial resources to be a blessing to others and give generously - see the parable of the shrewd manager in Luke 16:1-13

This means that we want to be able to have flexibility, liquidity and to be able to determine how we spend and invest our money.

So when we saw that these Trump Accounts are modeled after 401k's, we saw red flags.

As first generation college graduates from poor immigrant families, Daniel and I both started our careers doing what we were told to do when it comes to retirement planning: put money into a 401(k). It wasn't until we got married and started defining our family vision and legacy that we realized that 401k's are not all they're promoted to be.

Here's why: Let's say you have $2 million dollars saved in your 401k. If you spent your life trying to build wealth and end up with an annual income of say, $400,000, that puts you in the top tax bracket, so any withdrawals you make, would be taxed up to 35% (or higher - who knows what the tax rates will be when we retire!). So that $2 million you thought you had? Take out 35% (or more, if tax rates go up) for taxes, and you have less than you thought saved for retirement.

Furthermore, you are penalized if you want to use those funds earlier (there are certain exceptions for emergencies). So, say you find a business opportunity to make a greater return on your investment than a 401k. But the government doesn't want you to do that, so early withdrawals are taxed + you pay a 10% penalty to the government because you're using your money earlier and in a different way than they want you to.

Don't get me wrong - 401k accounts aren't bad, and they should be part of your investment strategy, especially if your employer makes matching contributions (free money!) and you make enough money that you pay taxes (410k contributions are pre tax so they lower your taxable income) — it's why I still have and contribute to a 401k as of now, but it's not a long term strategy for us, and we're working to make it one very small part of our overall investment strategy.

That's why we have similar concerns over these Trump Accounts - there's just too many strings attached. If you have $5,000 a year to invest in your child's future, there are so many other ways to invest that money that could give you the same, or greater return, and more flexibility and control on when and how your children use that money.

We also don't want our kids to wait until they're 25 to get access to the full balance of the Trump Account - who knows what the world and tax rates will be like in 2051 and beyond!

If we have $5,000 a year to put towards our kid's future, we could invest that money ourselves in the stock market and have the same tax consequences as using the Trump Account, but we get more flexibility on what we invest in and what we use the money for if we cash out the investments, whenever we choose to cash it out. We could also invest that money in other assets for our kids' benefit like land, a business, etc, that could likely have a higher and better return.

Again, this doesn't mean you shouldn't take advantage of this - the Trump Accounts could be a great nest egg for your children if this aligns with your family values, vision and financial strategy. But for us, when we look at our finances from the perspective of building a legacy and generational wealth, as of now, this doesn't feel like the best fit for our family.

This is why we encourage couples to come up with a "Strategy Screen" - questions that you can vet decisions against to determine if a decision aligns with you family values and vision. Here are our strategy screen questions and how we applied this exercise to the Trump Accounts:

1. Does this align with how the Bible calls us to live out our lives? There is not an on point piece of Scripture on this. For our family, 1 Thessalonians 4:11 is a guiding scripture on all things work and finances, and that passage instructs believers to avoid financial dependence on others. In our understanding, this means doing everything we can to work with our hands and not have to depend on government aid. Note, this is not judging anyone who relies on government benefits - my parents and I have benefitted from financial government benefits when we could not make ends meet. Technically, this is "free" money that the government is giving to every newborn in the U.S. in the next 8 years, regardless of income, so our kids may be able to use it one day, but for our family, we're not opting into adding to this account. Your family may arrive to a different answer that is also supported by the Bible - this is not a salvation issue, so there are multiple ways of looking at this.

2. Will this put us on a path to financial freedom? No, it is not the highest and best use of our finances. It takes away our flexibility, liquidity and has too many strings attached.

3. Will this help us with the legacy we are building for our family? E.g., is this the best use of our time and resources on our way to where we want to be? No, part of the legacy we want to build is to set our kids up for success (here's how were doing this), and this includes equipping our kids with assets, tools, systems and opportunities. To do this, we need flexibility and control over where our money is spent and invested, so to put money into investments that the government "controls" over how and when you can use the funds? Not the best fit for us.

If you want to come up with your own strategy screen, check out our Legacy Guide - we actually just revamped the Legacy Guide to be a series of conversation starters over six date nights and it's so so good! The strategy screen questions are on date night 2!

What are your thoughts on the Trump Accounts? Should I do another post on some of the tax planning opportunities in this new bill?