It’s often said that Social Security is the third rail of American politics. No one wants to touch the issue with a 10-foot pole, except, of course, Republican and Democrat politicians who’ve been raiding Social Security since its inception.
Americans, for their part, have been conditioned to think it’s the responsibility of the federal government to take care of them in retirement, so it’s no surprise that any mention of tinkering with Social Security is risky business in the political world. Whenever Republicans even hint at the idea of privatization, Democrats and their media counterparts fearmonger that seniors will lose their homes or starve on the streets.
And that’s where the “Trump Account” comes into play — a blend of government support with private investment.
Already passed as part of the One Big Beautiful Bill Act, signed into law by President Donald Trump on July 4, the Trump Account provides each child born between 2025 and 2028 with $1,000 from Uncle Sam to be invested over the child’s lifetime. Children must be U.S. citizens and possess a Social Security number. The goal is to provide parents with an incentive to invest in their children’s future and provide them with a more substantial rate of return so they won’t have to worry about relying on Social Security alone.
“Contributions made before a child turns 18 are not tax-deductible, [but] employer contributions — up to $2,500 per year — are excluded from taxable income,” Newsweek reports. “The saved money must be invested in low-cost mutual funds or ETFs that track a U.S. stock index, such as the S&P 500. For now, more stable investment options like bonds or cash are not on the table. The accounts will become available in July 2026, and no money can be withdrawn until the child turns 18 years old.”
Despite the volatility of investing in the stock market, long-term investments in mutual funds certainly provide a greater return than handing money over to politicians.
Fox News Business breaks down some numbers in its report: “Parents and relatives can contribute up to $5,000 annually to a child’s account until the child turns 18, with the cap potentially adjusted for inflation after 2027. If the maximum contribution is made each year on the child’s birthday through age 17, the account could grow to between $191,500 and $676,400, depending on investment performance.” Additionally, “The financial head start for newborns could grow to as much as $1.9 million by the age of 28 if fully funded and left untouched, according to the Treasury Office of Tax Analysis. Even at the lower end of projected returns, the savings account could still yield nearly $600,000 over the same period.”
This all sounds too good to be true because it almost invariably is. There are some catches to consider before contributing to the Trump Account.
The Wall Street Journal explains some of those catches: “There is an early distribution penalty for withdrawals before age 59 ½, unless an exception applies, such as using the money for higher education, or up to $10,000 for a first-time home purchase. If you use the money to buy a car after age 59½, you’ll owe income taxes but no penalty. That would mean sitting on the account for decades.”
“To make matters even more complicated, say you contributed $10,000 of after-tax money to the account on top of the $1,000 seed money, and there is $4,000 of investment earnings,” the Journal continues. “Any distribution you take will be one-third taxable because the $1,000 seed money counts as earnings, and IRA distributions that include after-tax money are partially taxable. If you take out $6,000 in this case, $2,000 would be taxed, no matter what you use it for and at what age.”
Instead of creating a simple savings account, the Trump Account comes with all the penalties and complex rules we come to expect from the federal government. As a result, it may not be the best option for all parents. And there’s an important question no one seems to be asking: Are Republicans setting a bad precedent by embracing the idea of government handing out $1,000 deposits for newborns?
Another criticism (or a positive, depending on how you look at it) of the Trump Account is that it’s what Treasury Secretary Scott Bessent called a “back door for privatizing Social Security.” He explained, “Social Security is a defined benefit plan paid out to the extent that if all of a sudden, if these accounts grow and you have hundreds of thousands of dollars for your retirement, then that’s a game changer.”
There’s no evidence the Trump Account is actually designed to replace Social Security, as any child enrolled in the new account will still pay into the Social Security system and later receive benefits. But it may be an important first step in having more discussions about what to do with Social Security in the long term, something neither political party is willing to do.
The time for that discussion is running out. According to the Government Accountability Office, “The program has paid out more money than it received (in taxes) since 2010. Trustees that oversee Social Security’s finances say that the program’s reserve funds will be exhausted in less than 10 years if no action is taken. This could mean that retirees receive only about 79% of their scheduled benefits.”
Part of the debate that’s often overlooked regarding the Trump Account and Social Security is that Americans don’t need the federal government to save their own money, build wealth, and ensure a stable or even prosperous future. One thing we’ve learned the hard way from politicians is that they can’t be trusted to protect our hard-earned money, no matter which side of the aisle they’re on. The Trump Account isn’t a perfect solution. Still, perhaps it’s a move in the right direction, as it provides families and individuals with control over their own investments, offering the potential for a substantial return compared to Social Security.
