‘Trump Accounts’ for kids get funding boost from Dalio and BlackRock

Under the multi-trillion-dollar tax and spending bill signed by President Donald Trump in July, the federal government will contribute $1,000 to accounts set up for every American child born in the next few years.

The initiative got a boost on Dec. 2 when billionaires Michael and Susan Dell announced a $6.25 billion gift to foundation accounts for millions of older children as well. Other big names in business and finance, including Bridgewater Associates founder Ray Dalio and BlackRock Inc, soon followed with smaller undertakings of their own.

Lawmakers have significantly reduced the program’s flexibility and tax benefits since the initial proposal. While accounts can serve as a starting point for long-term savings, there are other investment vehicles, especially 529 plans, that offer greater tax advantages.

Here’s how the math works and how the new infusion of money could impact the program.

How will Trump’s accounts work?

For each account, annual contributions will be capped at $5,000, an amount that will be adjusted for inflation. The idea is for parents, relatives and even employers of caregivers to provide money over time. The federal government, as well as state, local or tribal governments, can also contribute and are not subject to a cap.

Accounts will be closed until the child reaches 18 years of age. At that point, Trump’s accounts essentially become individual retirement accounts, which can be used without penalty for certain expenses such as higher education or first-time home purchases.

Only one account is allowed per person. The US Treasury Department will issue regulations requiring funds to be invested in exchange-traded funds or exchange-traded funds (ETFs) that “primarily” hold US stocks. Funds must charge low fees and not use leverage, according to the law signed in July.

Another exception to the contribution limit applies to nonprofit organizations, including 501(c)(3) and 501(c)(4) organizations, which can give to recipients based on where they live.

Parents, relatives, employers or philanthropists can contribute to the designated recipient’s Trump account until the year they turn 17. Parents will be allowed to start contributing on behalf of children starting July 4, 2026, the IRS said.

Also through a pilot program, the U.S. government will contribute $1,000 to accounts for children born from the beginning of 2025 through the end of 2028. Caregivers will be able to register children for an account through an online portal operated by the IRS.

Why are the contributions of business leaders important?

The commitments by corporations and wealthy donors show how companies and business leaders are eager to show public support for a program that Trump sees as part of his presidential legacy.

Dalio said his foundation will donate $250 each to about 300,000 “Trump Accounts” for children in Connecticut. BlackRock said it will match federal government contributions to employees’ children’s accounts, giving them $1,000 each.

The pledges follow the Dells’ announcement in early December of a $6.25 billion grant aimed at creating accounts for 25 million American children aged 10 or younger who were too old to qualify for initial government funding. The donation is targeted to children living in ZIP codes with an average income of less than $150,000.

Each qualifying account will receive $250 from Dell. While that amount is unlikely to grow into a large nest egg even over a couple of decades, Michael Dell, founder of Dell Technologies Inc., said as he revealed the gift he hopes will inspire others to give as well.

What will beneficiaries be able to do with their money?

Trump’s accounts cannot be touched until the age of 18. At that point, they’re basically treated like traditional individual retirement accounts. As with an IRA, funds can be withdrawn early to cover certain eligible expenses, including higher education, up to $10,000 for a first-time home purchase and $5,000 per child for birth or adoption expenses. Other distributions result in a 10% penalty.

What are the tax advantages of Trump accounts?

Accounts grow tax-free, and will not be taxed until the funds are withdrawn. These taxes are complex, and the US Treasury has not yet issued rules on exactly how they work. The law stipulates that beneficiaries do not pay taxes on any after-tax contributions to their accounts, such as those made by parents and relatives. But any gains or tax-deductible contributions from the government, charities or employers will be taxed like ordinary income upon withdrawal. Furthermore, beneficiaries will also face a 10% IRA withdrawal penalty if the funds are used for nonqualified expenses.

What changed in the proposal before it became law in July?

Lawmakers adjusted Trump’s calculations so that the distributions would be taxed as ordinary income. Early versions of the bill said the distributions would be taxed at long-term capital gains rates, which are much lower than those for ordinary income. The calculations were also changed to follow IRA withdrawal rules, meaning the recipient’s small business start-up costs are no longer eligible for penalty-free distributions.

How do Trump’s accounts compare to 529 college savings plans?

Trump accounts have much lower tax advantages than 529 college savings plans, which also have much higher contribution limits.

With a 529 plan, withdrawals are tax-free for qualified educational expenses, and contributions are often eligible for state income tax deductions. Trump account holders will still pay taxes on withdrawals.

How much will the plan cost the federal government?

Trump’s accounting program will cost about $15 billion over the next decade, according to the Congressional Budget Office, a small fraction of the total tax and spending package approved in July.

Where did the idea come from? What do supporters and skeptics say?

The idea of ​​government-financed “baby bonds” was first proposed by economist Darrick Hamilton, a professor at the New School for Social Research in New York, as a way to help poor Americans build assets and narrow the racial wealth gap. Several states, including Connecticut, have established child bond programs or are in the process of doing so. Hamilton was skeptical of Trump’s calculations, calling it an idea to “address wealth inequality cheaply.”

One impetus for this comprehensive approach appears to have come from Kevin Hassett, director of the White House National Economic Council, who along with economist Robert Shapiro last year began promoting the idea of ​​$1,000 accounts for newborns. It’s “a simple solution to help people connect to financial markets so that everyone in the country shares the wealth,” Hassett said in a presentation to the Aspen Institute in 2024.

“Tax-favored accounts primarily benefit families who already have free time and money, not families who need the most help,” warned Greg Leiserson, an economist who served in the Biden and Obama administrations.