What's New in Washington? New Investment Accounts for Children
Congress recently created a new savings program for children that has generated a lot of interest among parents and grandparents. The program, known as a 530A Trump Account, provides eligible children born between 2025 - 2028 with a one-time $1,000 government contribution.
The 530A account is invested in a broad U.S. stock market index fund and is designed as a long-term wealth-building tool. Families, friends and employers can contribute to the account, with total contributions of up to $5,000 per child each year. Some employers may also offer contributions or a matching program as an employee benefit, so it is worth checking with your employer to see what may be available.
The Power of Starting Early
While the $1,000 government contribution is certainly attractive, what caught our attention is the power of starting early.
For example, if a child receives the initial $1,000 and the family contributes $5,000 per year for 18 years, earning an average 7% annual return, the account could grow to approximately $170,000 by age 18. If that money remained invested and continued to earn 7%, with no additional contributions, it could potentially grow to more than $4 million by age 65.
Of course, investment returns are not guaranteed, but the example illustrates something we talk about with clients all the time: time can be one of the most powerful tools for building wealth.
What About Children Born Before 2025?
There is another opportunity worth knowing about. Michael and Susan Dell have committed to providing $250 contributions to eligible children age 10 and under who were born before 2025 and live in qualifying ZIP codes.
Eligibility is based in part on the median income of the child's ZIP code. If you have a child or grandchild who may qualify, you can check eligibility for the $250 Dell contribution here: Invest America ZIP Code Checker
What Should Families Consider?
For most families, we would suggest the following:
Take advantage of the $1,000 government contribution if your child or grandchild is eligible.
Check whether an older child qualifies for the $250 Dell contribution.
Anyone under the age of 18 in the year the account is opened, can fund it up to $5,000/year. (This applies to both the 530A Trump account and the Dell account).
Consider funding a 529 college savings plan if education funding is a primary goal.
View the 530A account as a complementary tool for long-term wealth building, rather than a replacement for other savings strategies.
Check with your employer to see if it plans to offer contributions or a matching program.
If flexibility is important, consider a UGMA or UTMA custodial account.
Once a child has earned income, consider a Roth IRA for Kids, which offers the potential for tax-free growth over a lifetime.
The program is still new, and government agencies and financial institutions are continuing to release guidance and implementation details. We will be monitoring developments closely and will share updates as more information becomes available.
As always, if you would like to discuss whether a 530A account makes sense for your family, please reach out to any of us on the Watercolor Team.