Brett Arends at MarketWatch made the case that the new Trump accounts work best for families who are already wealthy: a $5,000-a-year contribution that is only a good deal if the child will not need the money until well into adulthood. He asked me how families should think about it.
Here is the short version I gave him. If your child is going to use the money at 18, for college or a first car, a Trump account can actually be a worse deal than a regular taxable brokerage account holding the same investment. The reason comes down to taxes. Money coming out of a Trump account is taxed at ordinary income rates. Money coming out of a taxable account gets capital gains rates instead, and for an 18-year-old without much other income, a good chunk of that often lands in the 0% bracket.
If your child qualifies for the government's seed deposit, or an employer offers a matching contribution, take it. That part is close to free money. Just do not add much more on top if the account is going to be spent down at 18.
The math changes completely for families who will not touch the money until the child's retirement. Decades of tax-deferred compounding is where a Trump account can shine, which is exactly why it favors households that do not need it.
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