Although Republicans’ “One Big Beautiful Bill” (OBBB) remains deeply problematic as a package, one of its few bright spots is the creation of individual savings accounts for American children. Currently known as “Trump Accounts,” these investment vehicles would provide every child born between 2025 and 2028 with a tax-deferred account and an initial $1,000 seed contribution from the federal Treasury. The proposal is a surprisingly good first step towards helping America’s youth build wealth and access opportunity, but it needs improvements to fully achieve its policy goals.
Children born into low-wealth families typically start life at a significant disadvantage, lacking both financial resources and access to other tools that promote long-term economic security. Meanwhile, their high-income peers can often rely on family to get ahead — helping them to pay for college, buy a home, or make lucrative professional connections. Proposals to establish investment accounts for children aim to address this gap by giving every child a foundation on which to build a more stable financial future.
Trump Accounts would make some limited progress towards this goal due to several good design features. First, the program is nearly universal: nearly all American children born between 2025 and 2028 would be eligible to receive a one-time $1,000 contribution into a tax-deferred investment account, which reduces the administrative hurdles of more complex eligibility criteria. The accounts would be invested into broad index funds, which avoids both the risk of speculative investments and the limitations of investing only in government bonds. Limiting withdrawals before age 30 to activities such as higher education, homeownership, or starting a business encourages beneficiaries to use funds for building wealth or expanding economic opportunities. Lastly, by subjecting qualified withdrawals to capital gains taxes — which only apply to individuals who have annual incomes over $63,000 and couples who earn twice that amount — policymakers prevent these accounts from becoming a regressive tax shelter that primarily benefits wealthy families.
But while they are a credible start, Trump Accounts fall short in several critical ways. Although the accounts provide an initial government contribution to all children, they offer no mechanism to supplement savings for low-income families, who are the least likely to have additional funds to contribute to the account. Therefore, it provides the same amount of support to low-income children, who need it the most, as it does to wealthy children, who don’t need it at all. Furthermore, the accounts lack any material support to help account holders build financial literacy and other skills needed to grow modest account balances into long-term wealth.
Perhaps the biggest flaw is that there is very little reason under current law for families to put additional contributions into Trump Accounts, given the existence of other savings accounts with greater tax advantages. For example, 529 plans are savings accounts that offer generous contribution limits and completely tax-free growth if withdrawals are used for education. Trump accounts, on the other hand, only delay taxes on the sale of assets until money is withdrawn from the account. As long as families can contribute to 529s, there is no incentive to use or save with the relatively less tax-advantaged Trump accounts.
These flaws could all be mitigated by incorporating elements of the Child Opportunity Accounts (COAs) previously proposed by PPI. Like Trump Accounts, COAs would start with a seed contribution at birth, but go further by providing ongoing, income-based contributions throughout a child’s life. By the time they reach adulthood, a low-income child would have tens of thousands of dollars saved in their account — compared to just a few thousand in a Trump Account.
COAs also incorporate financial education directly into the account structure to help beneficiaries get the most bang for their buck. Account portals would include information on investing, budgeting, and other financial management topics to help owners build up their knowledge of basic concepts. Before beneficiaries can access funds at younger ages, they would be required to complete a basic financial literacy assessment. This simple requirement ensures that young adults have the tools they need to not just wisely use their account savings, but also grow them over time.
Policymakers could both partially offset the cost of additional supplemental contributions and make the accounts more useful by phasing out the use of 529 plans, which PPI proposed in a comprehensive budget blueprint last year. Because the taxes from which 529 accounts are exempt only apply to higher-income households, and because the highest-income households would pay a higher rate, the tax benefit of 529s is quite regressive: more than 70% of tax benefits go to households in the top 7% of the income distribution. By removing them as an option and using the savings to improve Trump accounts, policymakers can shift federal subsidies away from high-income households and toward those who truly need them.
If the goal is to give every child a fair shot at building a secure financial future, we need policies that not just account for the different resources they need, but also give them the skills and knowledge essential for a successful financial future. As Senate Republicans grapple with their bill’s astronomical cost and regressivity, incorporating these elements of PPI’s previous proposals would be a small, positive step to improve their bill and redirect federal resources to those who need them most.
