A Trump Account could make your kid a millionaire-but financial experts warn of a catch

Key Points:

• Trump Accounts, tax-advantaged investment accounts for children created under President Trump's tax law, allow contributions up to $5,000 annually with a $1,000 government seed deposit for eligible babies born 2025-2028, and projections show significant long-term growth assuming sustained market returns.
• Financial experts caution that these projections rely on optimistic assumptions, such as a consistent 7-10% annual return, and emphasize that the majority of the account’s growth comes from compounding over time rather than the initial contributions.
• Key risks include market volatility, tax implications (withdrawals are taxed as ordinary income and penalties apply before age 59½), and the fact that children gain full control of the account at age 18, which may lead to premature withdrawals.
• Experts recommend using Trump Accounts as a supplement rather than a replacement for traditional retirement accounts and 529 college savings plans, prioritizing employer 401(k) matches first and considering the account’s flexibility for uncertain college plans or children without earned income.
• The account’s biggest advantage is early compounding starting at birth, but converting to a Roth IRA in early adulthood may maximize tax benefits; ultimately, the success of the account depends heavily on whether the child can leave the funds untouched for decades.