FILE PHOTO: U.S. President Donald Trump smiles during an announcement about "Trump accounts", in the Roosevelt Room at the White House in Washington, D.C., U.S., December 2, 2025. REUTERS/Brian Snyder/File Photo

By Lauren Young

NEW YORK, Dec 4 (Reuters) - Will "Trump Accounts" help lower-income Americans build wealth?

The investment program is part of President Donald Trump's One Big Beautiful Bill Act, although many details are still unknown.

"Overall, anything that pushes families to build savings early is useful in theory, but the mechanics matter more than the slogan," says Melissa Caro, a certified financial planner in New York.

HOW TRUMP ACCOUNTS WILL WORK

The government expects to roll out the program on July 4, 2026. The U.S. Treasury will deposit $1,000 of seed money into investment accounts for all children born between 2025 and 2028 with a valid Social Security number. The government will invest the money in low-cost index funds that grow tax-deferred. Income taxes are due upon withdrawal.

Parents, guardians, an employer or another entity could add more funds to a child's account. The program limits these contributions to $5,000 per year, with the employer portion expected to be limited to $2,500 per year.

HOW IS THE DELL FAMILY INVOLVED IN THE INITIATIVE?

Entrepreneur Michael Dell and his wife, Susan, said Monday they will deposit $250 in the individual investment accounts of 25 million American children in a $6.25 billion philanthropic pledge.

Children who live in ZIP codes where the median family income is $150,000 or less will receive the money, according to a spokesperson for the Dells.

Joseph Lavorgna, a counselor to U.S. Treasury Secretary Scott Bessent, told Reuters NEXT the accounts will help boost investment in the U.S. economy while teaching Americans how compound interest works, as they see their children's money grow over time. Lavorgna says he expects other donors to step forward with investments.

WHAT ARE THE TAX IMPLICATIONS?

Trump Accounts are essentially a custodial retirement account, known as a Custodial IRA, overseen by a parent or legal guardian, says Alex Caswell, a certified financial planner at Wealth Script Advisors in San Francisco. When the child turns 18, the account converts into a traditional IRA.

Withdrawals from a Trump Account face IRA-style treatment, including penalties for early or non-qualified use, explains John Iselin, associate director of economic research at the Budget Lab at Yale.

"Help is broad and shallow rather than targeted and large," Iselin says.

529 plans are another popular savings mechanism for families. They can use the funds to pay for college tuition along with other educational opportunities. While contributions to a 529 plan are not deductible on federal income taxes, many states provide a full or partial state income tax deduction or credit for contributions.

Any leftover money in a 529 can also be used for retirement savings.

HOW MUCH CAN YOU SAVE?

Andrew Herzog, a certified financial planner at the Watchman Group in Plano, Texas, calculates that if you leave the $1,000 seed money alone for 28 years, with an assumption it will earn 10% per year, you will end up with $16,000. Since 1957, the S&P 500 has delivered an average annual return of 10.54%.

"For new parents it's a deal to get $1,000 from the federal government — take it," Herzog says.

Herzog's calculations show that investing the seed money, plus $100 a month until age 18 (the age limit for contributions), then letting the account grow for another 10 years, would result in approximately $180,000.

For those with the ability to save more aggressively, the outcome is even more dramatic. Investing the seed money, plus maxing out contributions each year at $5,000 up until age 18, then letting the account grow for another 10 years, would yield a portfolio worth $698,000 by the time the child turns 28.

WHO WILL MANAGE TRUMP ACCOUNTS?

Financial firms are scrambling to grab a piece of the program, according to public lobbying records. The Investment Company Institute, a Washington trade group representing the world's largest asset managers, on October 29 wrote to the U.S. Treasury, urging it to create a "robust and competitive marketplace for account trustees and custodians," rather than picking a single program provider.

CAN TRUMP ACCOUNTS BOOST FINANCIAL LITERACY IN THE US?

"There are some teachable moments when kids have investments in their name as they get older," says Jackie Cummings Koski, a certified financial planner and financial educator. "Like what is an index fund? What stocks do they own in the fund? How much will it grow? What will they use it for?"

The Treasury and philanthropic seed money is a useful nudge, says Tomas Geoghegan, founder and family wealth adviser at Beacon Hill Private Wealth in Summit, New Jersey. "The real impact will come from whether families develop the habit of contributing regularly," Geoghegan says.

Research shows automatic deposits, immediate matches and clear rules are better methods to boost savings among lower-income households, Caro notes.

"You put money in now and get the benefit at tax time," Caro said. "That’s not how you move behavior for the families this is aimed at."

HOW CAN I OPEN AN ACCOUNT?

First, fill out IRS Form 4547, which can be filed at any time. Beginning mid-2026, you should be able to set up an online account at trumpaccounts.gov.

WHAT DETAILS STILL NEED TO BE ANSWERED?

Several pieces are still unclear, including how the account will be treated when families apply for federal student aid. Other questions: How will custodians handle compliance, investment restrictions and employer funding?

"Those operational details will determine whether the accounts feel straightforward or burdensome," Geoghegan says.

(Reporting by Lauren Young; Additional reporting by Andrea Shalal; Editing by Lisa Shumaker)