Understanding the "Trump Account" in one article: Give newborns $1,000 to buy stocks, how much can it turn into after 18 years?

U.S. Treasury Secretary Becerra delivered a speech on the evening of December 17, reiterating the core vision of the "Trump Account" plan aimed at increasing the proportion of stock ownership among the American public.

Becerra pointed out that currently, 38% of Americans do not own any stocks, and the goal of the plan is to reduce this percentage to zero. As an important component of the "Big Beautiful Plan," the initiative seeks to reshape American households' balance sheets through government capital injection and the effects of compound interest.

According to the latest details disclosed by the U.S. Treasury and estimates from the White House Council of Economic Advisers (CEA), this plan is expected to generate significant wealth effects over several decades. In his speech, Becerra projected that if the S&P 500 index grows at an average annual rate of 10.5%, the $1,000 seed funding deposited once by the government for eligible newborns could grow to approximately $600,000 by the time they retire.

In a high-yield scenario, if families can maximize additional investments through private funds each year, the account could be worth over $300,000 when the child turns 18, and could even exceed $1 million by age 28.

This plan is not only a Republican attempt to narrow the wealth gap but also a long-term social experiment aimed at cultivating a new generation of "capitalists." Under the plan, the U.S. government will establish investment accounts for children born between 2025 and 2028, with funds primarily directed towards index funds that track the U.S. stock market.

The Treasury stated that this initiative is not intended to replace the social security system but to supplement it, allowing more Americans to directly participate in the distribution of corporate value creation.

However, despite market interest in this new passive flow of funds, the plan still faces controversy regarding its execution details and tax efficiency. Critics argue that the tax incentives are insufficient and that low-income groups may be overlooked due to the reliance on family tax filings. Meanwhile, the financial services industry is closely monitoring the public-private partnership model of the plan, particularly how the Treasury will select private institutions to manage these large funds, which will directly impact the future market landscape.

Significant Long-Term Compound Interest Effects, $1,000 Seed Funding Could Appreciate to Hundreds of Thousands

According to reports from The Hill and NEXSTAR, the U.S. Treasury and CEA have outlined a detailed revenue outlook for this account.

The core of the plan lies in utilizing time compounding. For children born between January 1, 2025, and December 31, 2028, the U.S. Treasury will automatically deposit $1,000 in seed funding. Without any additional contributions, this initial amount is expected to grow to $5,800 after 18 years, and to $18,100 after 28 years.

If families can contribute an additional $250 each year, the account value at the time the child reaches adulthood is expected to be $20,700. In the most optimistic scenario, if families or donors reach the $5,000 annual contribution limit, the account will hold over $300,000 when the beneficiary turns 18.

These funds come with strict lock-up periods and usage restrictions. The IRS states that the funds can only be withdrawn after the beneficiary turns 18 and are primarily intended for specific purposes, such as higher education expenses, purchasing a first home, or starting a business. **

Diversified Sources and Structure of Funding, with Government, Enterprises, and Individuals Able to Invest

The "Trump Account" adopts a more flexible funding source structure, introducing funds from business owners, philanthropists, and state governments in addition to federal appropriations.

According to NEXSTAR, for children aged 10 and under (born before 2025) who do not qualify for the $1,000 seed funding, those living in areas with a median family income below $150,000 will receive $6.25 billion in funding support donated by Dell Technologies founder Michael Dell and his wife, with a one-time distribution of $250 per person. Additionally, hedge fund moguls Ray Dalio and his wife will provide an extra $250 in funding for eligible children in Connecticut.

In terms of additional investments, the plan allows legal guardians, other individuals, and private entities to contribute funds. The annual contribution limit for individuals is $5,000, and employers can contribute up to $2,500 for employee children's accounts (counted towards the total limit), with these limits adjusted annually for inflation.

The plan is expected to officially open for the first round of funding after July 4, 2026, with parents required to register by filling out Form 4547 or logging onto the dedicated website that will launch next July.

The Plan Faces Dual Criticism: Insufficient Tax Benefits and Registration Mechanism May Omit Low-Income Groups

Despite its grand vision, tax experts and Democrats have pointed out design flaws in the plan, according to Politico. Unlike the 529 education savings plan, the "Trump Account" is funded with after-tax income and also requires taxation upon withdrawal.

Former senior tax official in the Biden administration, Greg Leiserson, noted that beneficiaries may need to pay ordinary income tax rates on some earnings, which in certain cases may be less favorable than the capital gains tax treatment enjoyed by directly opening a traditional brokerage account. He believes that due to the "negligible" tax benefits, most families' willingness to contribute additional funds beyond the $1,000 provided by the government may be very limited.

Moreover, the registration mechanism has raised concerns about coverage. Currently, it primarily leans towards allowing parents to opt-in when filing taxes. Ray Boshara from the Aspen Institute warned that this could overlook low-income families who do not need to file taxes or do so irregularly, thus undermining the initial intention of narrowing the wealth gap.

Congressman Don Beyer criticized the plan as a "missed opportunity," arguing that it focuses more on political gimmicks rather than providing substantial help to low-income individuals. Democrats have proposed competing plans, such as the bill introduced by Senator Cory Booker to provide more funding support for low-income families.

Cultivating a "Shareholder Generation"

Beyond specific financial calculations, the ideological intent behind the plan is quite clear.

Matt Lira, executive director of the nonprofit organization Invest America, stated that while the U.S. economy excels at creating wealth, individuals cannot participate in this value creation without holding assets that can generate compound interest, such as stocks. He pointed out that by allowing young people to personally experience the investment system, they can develop a more favorable view of the capital market system For the financial market, this means that there will be a stable and long-term passive inflow of funds into index funds tracking the S&P 500 and others in the future. Currently, the financial services industry has warned the Treasury that if only a single company is chosen to exclusively operate the project, other institutions will lack the motivation to promote the plan to the public.

At present, some companies, including Uber, Dell, and Charter Communications, have expressed their intention to contribute to accounts for their employees' children