Rick on MS Now: Trump Accounts sound too scammy
The government is offering free money to babies born between 2025 and 2028. Here's what to know.
Hi friends. In Pinpoint news, I’ve started writing occasional commentaries for MS Now, the new incarnation of MSNBC. I recently explained how Trump is widening America’s wealth gap, and before that, how the AI boom is holding up the whole Trump economy. It’s all part of building The Pinpoint Press into the first stop for sharp insights on what really matters in money and politics. 🙂
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MS Now invited me on air recently to talk about Trump Accounts, the government-backed investment vehicles for children born between 2025 and 2028. The accounts went live in early July.
Bullet points below. Here’s the video:
Congress created Trump Accounts as part of the tax bill that went into effect last year. The government will seed each account with $1,000 that the child’s parents or guardians can invest in a limited set of exchange-traded stock funds, or ETFs. The idea is to give every child who qualifies a bit of exposure to the stock market.
There’s no income limit for qualification, and most children with a Social Security number qualify. The SSN requirement is there to ensure no undocumented migrants, Trump’s mortal enemies, take taxpayer money.
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Individuals and employers can contribute additional money to the accounts, which function like an IRA. It’s free money and everybody who qualifies should take it. If you invested $1,000 in an S&P 500 fund 18 years ago and reinvested the dividends, you’d have about $8,500 today.
There are some problems, though:
They shouldn’t be called Trump Accounts. Many people will think this is some kind of private Trump venture—like Trump’s memecoin, which was basically a scam—and steer clear. Trump’s egomaniacal drive to put his name on everything will obscure the fact that this is a no-cost investment funded by the government.
Why do they only run through 2028? Politics, duh. The law as it exists only includes funding through the last year of Trump’s term. What then? It’s yet another example of arbitrary partisan policymaking that leaves voters confused and cynical.
Cash-outs are coming. Once the child turns 18, there are incentives to keep the money invested or use it for a designated purpose, mainly education or buying a home. But come on, some 18-year-olds are going to pay the 10% penalty, take the cash, and buy a motorcycle or a boat. Trump Accounts will undoubtedly finance some jackassery.
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The smart move seems to be, take the $1,000 plus any employer or philanthropic contributions you qualify for. But it may make sense to put your personal money into other investments that are better structured, such as a 529 education plan.
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Trump would be smarter to just pay $1000 into a 529 [lan set up. That can be used for mutiple educational expenses and can be distrbute w/o penalty under many circumstances.
Options for Unused Funds:If your beneficiary graduates or decides not to attend college, you have several penalty-free options:Change the Beneficiary: Transfer the funds to an eligible family member (e.g., a sibling) with no tax consequences.Roth IRA Rollover: Starting in 2024, you can roll up to $35,000 of unused 529 funds into a Roth IRA for the beneficiary over their lifetime, provided the account has been open for 15 years.Keep the Account Open: You can leave the funds invested for future educational goal