Will Trump Accounts for Babies Really Be Worth $170,000 in 18 Years?
The IRS announced new guidance last week about so-called Trump Accounts, birth-based custodial accounts included in the sweeping package of tax cuts signed into law earlier this year. Officials have said that these accounts could be worth $170,000 or more after 18 years — but financial pros question the math behind the bold claims.
The government has pledged to deposit $1,000 into these accounts for babies born between 2025 and 2028. Last week, the White House also announced a $6.25 billion donation from computer pioneer and billionaire Michael Dell and his wife, Susan. That money would be distributed in $250 increments to roughly 25 million children age 10 and under who live in ZIP codes with median incomes of $150,000 or less, greatly expanding the pool of eligible children.
After being seeded with an initial $1,000 or $250, the maximum annual contribution to a Trump Account will be $5,000 (indexed for inflation starting in 2028). The IRS said that states, nonprofits and certain other entities will be able to contribute beyond the $5,000 annual limit, although it has not yet provided further details. Employers can contribute up to $2,500 not included in parents’ taxable income, which counts towards the $5,000 cap.
“I think there's a good opportunity here, because the employer can put $2,500 and it doesn't count as taxable income to the employee, so it could be a really nice fringe benefit,” says Lisa Featherngill, national director of strategic wealth and business advisory at Comerica Wealth Management in Winston-Salem, N.C. "It’s a way of getting young people focused on financial literacy earlier, even if it's a few thousand dollars."
The larger potential of — and the bigger unanswered questions about — these accounts comes from what that money will do over time. At a White House press briefing last week, Sen. Ted Cruz (R-Texas) detailed some back-of-the-envelope math that contained pretty eye-catching numbers, using the example of a hypothetical girl born this year who was eligible for the initial $1,000 deposit. Here's what he said:
"Her parents, her family or an employer puts $5,000 a year each year into that account. If you assume the historic rate of growth of the S&P 500, which is 7% a year, by the time that little girl is 18, she will have $170,000 in that account.
"And if she keeps saving, by the time that little girl is 35, she will have $700,000 in that account. We're talking the kids of a single mom waiting tables who could have $700,000 saved by the time she is 35."
Do the numbers add up?
"The concern I have is that the S&P 500 doesn't give [7]% every year," says Elizabeth Pennington, a senior associate at the financial planning firm Fearless Finance.
Cruz's math was a rough estimate because the IRS says that the $5,000 annual contribution limit will be indexed to inflation beginning in 2027, so parents would have to save (or have contributed on their child's behalf) more than $5,000 to max out the savings.
More crucially, to achieve those kinds of returns, you’d need more than the initial government-funded $1,000 seed payment — a lot more.
To reach approximately $170,000 in 18 years, the child’s parents or employer would have to kick in the maximum $5,000 annual contribution every single year. After inflation indexing kicks in, that adds up to roughly $100,000. That’s $90,000 in total.
Sure, $170,000 is a heck of a lot more, but coming up with six figures might not be so easy for American families already struggling to afford daycare, doctor visits and the other big-ticket items that can sink household budgets.
While it's technically doable, financial planners are quick to point out that the possibility of the hypothetical poor single mom invoked by Cruz having an extra $5,000 plus the inflation adjustment per child — or even an extra $2,500, if they worked for an employer that contributed the maximum — to contribute every year for 18 years in a row, is low.
The White House’s own economic projects are even rosier... and less likely: A report from the Council of Economic Advisers, or CEA, calculated a range of scenarios to project the range of balances in Trump Accounts. To achieve its most optimistic "high returns" scenario, the S&P would have to yield returns of 18.5% per year — for 18 years in a row. The CEA's metric for calculating "midpoint" returns over 18 years was 10.3%, and on the low end, it calculated 5.4%.
"Last year, the S&P returned 25%, so it’s not out of the realm of possibility," says Jonathan Lee, a senior portfolio manager at US Bank. "Over 18 years, that's a long time horizon to have near-20% returns."
"A lot of this comes down to timing of when you start your 18-year period," Lee says. "There have been lost decades, so to speak, but you have a longer time horizon here… I think 5.4% is more realistic than 18.5%, but the average of 10.3% is a solid assumption in their methodology."
The CEA uses similarly optimistic projections for its longer-term calculations. If contributions are maxed out every year, and if the S&P delivers an annual return of 14.1% for a period of 28 years, a Trump Account holder could wind up with $1.9 million.
Big questions about risk, returns, other wrinkles remain
In this case, it's not just the outsized market returns that raise questions. This is where the bar starts to really go up for hitting that $1.9 million by age 28.
Many of the program details still need to be hashed out, but under current IRA regulations, which the IRS has said Trump Accounts would be subject to after the account owner turns 18, the maximum contribution limit would rise to standard IRA contribution limits.
In this scenario, a hypothetical 18-year-old would have to earn at least an inflation-adjusted $7,000 every year to have enough money to contribute, since IRAs can only be funded with pre-tax earned income dollars.
Another big question is how the government will handle Trump Account savings when it comes to college financial aid calculations. "Is it going to be considered the child’s asset? That needs to be answered," Featherngill says.
This is significant because it is possible that colleges could view Trump Account balances as assets that would count against them when distributing need-based aid. Employed college students can impact how much need-based aid they receive if they earn more than a certain amount — $11,510 for the 2025-2026 Free Application for Federal Student Aid, or FAFSA.
“For a family that has enough money to save in other vehicles, too, that might not be a big deal… but that's not a lot of families,” she says. “If freshman year coincides with a recession, families might be forced to sell in a recession and lock in those losses.”
And families wouldn't have any way to shield their account balances from market dips — yet another concern financial pros raise about Trump accounts. When index funds are used in a 401(k) or a 529 with a time horizon established ahead of time, they are usually structured to automatically rebalance to a lower-risk allocation as the target date nears.
But the IRS guidance specifically prohibits Trump Account money from being held in a cash-like or money market fund, which means that families couldn't change their allocations in order to protect their earnings.
Even if a hypothetical young adult had an annual earned income of more than $7,000 a year that they could afford to invest rather than use for college or living expenses, there’s also the question of opportunity cost: It’s not currently clear if these hypothetical Trump Account contributions would have to come at the expense of other IRA contributions.
Current IRA regulations say that the contribution cap is an aggregate; in other words, if you have two IRAs, you can't contribute $7,000 to each one. If Trump Accounts fall under this regulation, this would require an account holder to forgo investing in other IRAs, even if those instruments offered more diverse investments.
A lack of diversity is another red flag that investing pros note about Trump Accounts. The IRS stipulated that both the initial seed money as well as subsequent contributions and investment returns will be invested in mutual funds or exchange-traded funds (ETFs) that track an index like the S&P 500 or another one consisting of “primarily American equities,” the agency said.
"There are risks. Perhaps an obvious one is the investment options are going to be limited," Lee says. "Diversification is one way to reduce risk in a portfolio over a long period of time. Geographic diversification is part of that."
The bottom line
The initial $1,000 payment will certainly be welcomed by parents, and even if they don't contribute any more, that money will grow over time. The low end of the CEA's estimate — no contributions beyond the initial $1,0000 payment and average returns of 5.4% for 18 years — still yields $2,577, more than doubling the initial investment.
If parents or employers contribute half the maximum each year ($2,500, indexed for inflation), even at a 5.4% return, that adds up to $94,993. Nearly six figures is no small sum, and it's not out of the realm of possibility to think that employers might offer these contributions as a worker perk, which wouldn't require parents to kick in their own money.
This might be the most valuable takeaway Trump Accounts offer American families, according to Pennington. "We’re looking at that money growing... which isn’t something special to the Trump Accounts," she says. "That's what it means to invest in the stock market for the long term."
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