"Trump Accounts" Who Qualifies, and How Do They Work?

The aisle seats have an aisle, the windows should have a window, we'll save it for the courts. The federal government launching a new savings initiative designed to help Americans build wealth from an early age. Now these are the Trump accounts you may have heard of over the weekend. The program allows any American child with a social security number to open an investment account aimed at encouraging long-term savings for retirement. Gerson Gibbs joins us managing partner at Bellic Capital and Gerson we wanted to have you on because we heard a lot about it over the weekend. They were announced, you heard Trump accounts, they're great Trump accounts, take advantage of them. But I think a lot of people have no idea what they are, how they work or who's eligible. So let's start with these simple questions. What are they and who can use them? Well it's a simple IRA. I think that it has a few caveats to it that differentiates it from a traditional IRA. But it's a simple IRA and basically children born between January 1st, 2025 and December 31st, 2028 are eligible to receive $1,000 seed money into it from the government. But it's a simple IRA that gives us the opportunity to participate in the financial industry through IRAs. And there's the limitations that are set around traditional IRAs are pretty limited in this type of instrument. So if I'm understanding this correctly, please correct me if I'm wrong, you're the expert here. The ages, the births, like you said, if someone is born during this current Trump administration, they get a little seed money. I think it's $1,000 to start. But anybody can have one if you are under 18 and have a social security number, correct? Correct. You just won't receive the seed money. If you're under 18 and have a valid social security number, you can also apply for this instrument. So we're basically for parents out there, you're basically using this as an IRA for your child under the age of 18. So once you open it, how much money can you contribute? Is it pre-tax dollars? It is pre-tax and you can contribute up to $5,000 a year. So the idea is, is then if you start the kids young with that $5,000 a year limit of pre-tax money, then that will grow over time. And then when they're 18, they'll have some money that's there. So let's talk about that part. First of all, can you take the money out before the child is 18? There's limitations on taking out the money until you're 18 years of age, which is a little different from a traditional IRA. You can withdraw with penalties. Okay. With a traditional IRA. Correct. And the second thing is when you do take it out, when that child turns 18 or theoretically it's their money. So when the child turns 18, they can take it out. It's in their name. What can that money be used for? Again, that money can be used for anything, right? It can be used towards college. It can be used towards additional investments. It can basically be used for anything. Okay. So it's a good savings option for your child if you have the means to put the $5,000 in there. If a parent opens this in the name of their child, and again, they have to have that social security number. Does that contribution to their account, does that impact what the parent can also contribute to if they already have an IRA? No, I believe it's still, the parent can contribute if they're under 18, but it's still the $5,000 limit. And I believe those caps will possibly change. Traditional IRAs, of course, you can contribute a lot more, but there's still a $5,000 cap. More than likely, it's gonna come from the parents because you're under 18 and there's not many individuals out there that can fund an account like this at such a young age, so the $5,000 cap is on the parents. But if the parent puts $5,000 into the kid's account, the parent can still have the same amount they can put into their own account, right? They don't overlap. Absolutely. Yeah, they do not overlap. They're totally separate, two totally different instruments. Got it. Okay. The other question I had for you is, I mean, this is your line of work. You see this all the time, you deal with this all the time. Is this really a good deal? Is this something that doesn't exist right now? Or could a parent just simply say, I wanna open a simple IRA for my newborn and let that money grow in their name? You can open up a 529 plans. They are planned similar for savings with relation to your child or younger individuals. However, the caveat in this is the free money. There's not many IRAs out there that are just gonna give you free money. I think that the free money is a push to help Americans that are not in the financial industry and to the financial industry. I'm giving them some incentive to enter the financial industry. So the major difference with this IRA is the $1,000 seed money. There are other caveats that don't play out so positively because this is more of a simple type of IRA. There are limitations on the type of investments that you can make. They're limited to small cap, low fee investments. It doesn't give you the opportunity to invest in all of the different instruments that a traditional IRA can invest in, as well as you can't withdraw the money. So those are two major caveats. However, in my opinion, I do think that it's a great instrument for those individuals who have not participated in the investment industry, which I always encourage individuals to do so because what makes the United States go round and round. I think this is a great opportunity. And just looking at some statistics, many may assume and there is just conversation about this is only for the wealthy. But when I was reading into the statistics, it appeared that about 80 to 85% of the individuals that applied for these Trump accounts fall under the $200,000 a year income bracket. So I believe a lot of middle class to lower class individuals are applying for this, which I believe is just overall great. Yeah, you wanna get people in the market, like you said. Is there an income limit? There's not. Okay, so it sounds to me, Gerson, that it seems like it's the best option for someone who has a child who was born during this administration in these years that you had mentioned. And if nothing else, take the $1,000. And even if you don't contribute any more to it over the years, that $1,000 is still gonna grow in 18 years, right? Absolutely, it can lead up to hundreds and hundreds of thousands of dollars by the time you're that age if you contribute the maximum amount. I also say that even if not the seed money, right, because there's individuals that are under 18 that can possibly qualify for this. I think they should also contribute into something like this, simply because our limitations are opening up a traditional IRA. You have to have a paycheck. Right. You have to have a job. So it's a little difficult for individuals under 18 to get an IRA. Yeah, it's great to have the options out there. And this could be a great option for you. I encourage you to do your research and look into it. But Gerson, thank you so much for breaking it down in such an easy to understand way for folks who might be interested. Thank you very much, Gerson Gibbs, Managing Partner at Bellicapital. Thank you for having me. You're very welcome. We've got to take a quick break.