Will Trump Accounts deliver for American children?

Breaking news from the markets: Will Trump Accounts deliver for American children? Image source, Getty ImagesByMichael RaceBusiness reporter, Reporting fromNew YorkPublished5 minutes agoThe launch of Trump Accounts, the new savings scheme aimed at encouraging investing among American children, was marked with an historic ringing of the Wall Street opening bell in the Oval Office this week. But not everyone is convinced the project will prove a success in giving new generations a stake in the so-called American dream, with sceptics suggesting that it will not live up to the hype.

The savings accounts are now available to all US children under the age of 18, with babies born between 2025 and 2028 qualifying for a $1,000 contribution to kickstart savings. The move comes as the cost of living remains a major issue ahead of November's mid-term elections, but tax experts told the families on lower incomes could lose out and that the scheme is too complicated. How do Trump Accounts work?

Economic Details

The accounts named after the president are available nationwide and can be created for anyone under the age of 18 with a valid social security number. Parents can simply download the app. Families, friends and employers can contribute up to $5,000 per year per child, who can access the funds when they turn 18.

By law, the money must be invested in a low-cost index fund designed for long-term growth. But while the money grows tax free, withdrawals are subject to taxes and a possible 10% penalty if made before the age of 59 and a half. To avoid such a penalty, the money must be assigned to pay for certain things, such as higher education, buying or building a first home, or for personal emergency expenses.

Trump Accounts add to other existing tax-efficient savings schemes that Americans can use for retirement, such as IRAs, or for educational purposes, such as 529 plans, which parents use to save for their children's college fees. According to a Congress report,, external Trump Accounts are a new form of traditional individual retirement account (IRA), but differ because of certain rules. What's the reaction been?

Analyst Views

While the White House has been keen to push the scheme, reaction to it has been split. The White House's argument is that Trump Accounts offer millions of children a way into stock ownership in the US, which it says has historically been "unevenly distributed, with many households - especially younger and lower‑income families - having little or no exposure". However, Will McBride, chief economist at the Tax Foundation think tank, says the scheme is too complicated to sign up to, which will lead, in his view to a "minority that benefits".

He suggests those that will take advantage will be the parents of children who are "relatively well-informed, relatively well-off, relatively tuned in have their act together".

Financial markets are tracking the development closely as investors assess the likely impact.