Trump's Baby Bonds

President Donald Trump and the Republican Congress have brightened up attendance at corporate webinars and seminars. Big shots and high-priced corporate attorneys can’t discuss this new legal landscape without referring to the One Big Beautiful Bill. They may hate it. They may love it. But to be professional, the guys and gals in the pin-striped suits have to call it beee-utiful before slipping into its acronym, OBBB.

One of the bill’s interesting experiments is the Trump Accounts, also known as Trump Baby Bonds. They are set to expire in three years, so don’t delay taking advantage if you are interested. This is a test, and as of this summer, the details are still being hammered out.

The idea behind these baby bonds is to reduce wealth inequality, give people a stake in the system, teach people the value of saving, help with education expenses, and boost first-time home ownership. Currently, the U.S. median age for first-time home ownership is 38.

It provides all children with seed money for a financial future that begins at birth. This allows time for compounding dividends and capital growth. The time value of money and all that.

There are 3.6 million babies born in the U.S. each year. In theory, at $1,000 per baby, a federal one-time deposit would result in $3.6 billion being invested among the newborns who are signed up each year. We don’t yet know which stock and bond investment funds will be approved. There are still many unanswered questions. But the annual amount for newborns is less than the $4 billion or so we give in foreign aid to countries such as Israel and Egypt each year. And it is chump change compared to our other foreign aid military expenditures, such as the $178 billion sent to the Ukrainian government over the last three years.

Passed on July 4, 2025, it will take effect no sooner than July 4, 2026, although implementation may not occur until 2027. In broad strokes, it is a government mashup of an IRA and education accounts to be created on behalf of U.S. citizens born between January 1, 2025, and December 31, 2028.

The program allows for additional deposits to be made. It is designed to increase financial education and provide an alternative to the social insecurity that comes from failing to save. Specific IRS rules will be in place regarding how people can take distributions without incurring penalties.

Up to $5,000 in after-tax dollars can be added annually, up to the year the baby boy or girl turns 17. Not counting interest or growth, the maximum donation could make the account worth $91,000 by the time the child reaches age 18. Employers can contribute up to $2,500 annually, which is not taxed to the employee.

Account deposits can be a combination of funds from you, your family, friends, employers, or other entities, including local or state governments. There is no means testing.

These accounts cannot be liquidated until 18 unless that person passes away. They must be invested in an index fund. The choices have not been selected. Similar to an IRA, there are penalties for early withdrawal. The primary difference is that there are exceptions for first-time home purchases, education expenses, and certain emergencies. The guidelines regarding its use in medical emergencies have not been established.

Human resources departments are already scrambling to determine how they can incorporate this into their benefits packages, possibly through matching.

Will it teach Americans to save more? Will it help lower the median age of home ownership? Given its size, it is not exactly 40 acres and a mule, nor the opening of cheap land for settlement in the American Midwest and West. However, it may be a start for building up assets and reducing onerous future interest payments for young people settling down to start a family.

This $3.6 billion annual payment won’t make any American rich. But it may just provide a better ROI to the country in the long run if parents decide to invest in their children's future. So if you know any young couples with a newborn, skip the baby shoes. Maybe throw them some money for that Trump Baby Bond.

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