A Trump account could make your child a millionaire, but financial experts warn of the catch

Enter an annual payment of $250, and the app shows that the user will receive $19,000 at age 18, or a whopping $878,000 at age 55. Raise that to the $5,000 annual cap, and the numbers jump to $271,000 and $13 million.

This eye-popping number comes directly from the government’s own forecast TrumpAccounts.govbut it is based on the assumption that the historical annual return of the S&P 500 is greater than 10%, and will remain uninterrupted for 55 years. While that 10% has historically been the case, Morningstar provided CNBC with data suggesting that U.S. stock market returns could be lower over the next decade, closer to the 6.3% average annual return.

Despite this, Financial Planners want parents to see the whole picture before they start dreaming about what feels like a fund or at least a nice nest egg for their children.

Trump Accounts, tax-advantaged investment accounts for children created under President Donald Trump’s tax law. started on July 4have grabbed attention with a headline promise: a child could retire on a millionaire’s payments while their family barely notices. Account operate like a traditional IRAbut during the « growth period », which lasts from birth to the year before the child turns 18, special rules apply.

Eligible babies born between 2025 and 2028 get a one-time $1,000 seed deposit From the US Treasury and families, friends and others can add up to $5,000 a year together in post-tax dollars, inflation-indexed cap after 2027.

What could a family actually build? And what should they understand before they consider an application projection as a complete financial plan? Here’s how four financial experts break it down — including Adam Vegacertified financial planner and managing partner at Avance Private Wealth Managementwho weighs the accounts of his own newborn.

« We went through these nuances together, » he shared Luck.

How much can a Trump account really be?

The four counselors who spoke Luck landed in very similar territory, and they got there using a more conservative yield assumption than the Trump administration.

Pam Kruegerregistered investment advisor and founder of the advisor-matching platform Wealthrampran the numbers for a family that maxed out their account. Add the $1,000 government seed to $5,000 a year from birth to age 18, and the family has contributed about $91,000.

Assuming a long-term annual return of 7 percent — his benchmark for money invested in the stock market over a lifetime — « the value of the account could grow to about $185,000 by age 18, » Krueger said. Luck. After that, unchanged, without additional funding, « it could grow to more than $1 million by age 45. »

« But that kid could have a lot more at 40, » he added. « Time in the market does the heavy lifting. It’s a growth-increasing force. »

Mitch Hamerfounder and lead advisor at Cutting wealthmodeled the same idea for his own 5-year-old son, whose account he recently funded. Also using a 7% rate of return, he estimates that the maximum annual deposits will be $1 million at age 45 and $3 million at age 60. At 8%, which he also considers defensible, the numbers jump to $1.4 million at age 45 and $4.5 million at age 60. He notes that those totals would be based on just $200,000 at age 45.

« Having a long time horizon and not interrupting the mix is ​​a strong concept in personal wealth accumulation, » Hamer said. Luck.

And this is a lesson that Financial Experts emphasized again and again: the stakes are almost irrelevant.

« Here’s the part that should stop people in their tracks » Matthew Chanceycertified financial planner, tax strategist and company founder Alpha tax companiestold Luck. Of the $1.5 million to $2 million he estimated the account could reach at age 55 at a 7 percent return, only about $91,000 came from family.

« Another $1.5 million or so came from time, » he said. « It’s not a rounding difference, it’s the whole story. Which means the only real question isn’t how much you put in, it’s whether the kid can leave the money alone long enough to do what time does. »

Krueger did the same thing using percentages: assuming 7%, more than 90% of the account’s final value comes from decades of compounding, not deposits.

« The real engine is not deposits – it’s time, » he said. « That’s why starting early gets someone so far. »

Warnings are constantly underestimated by parents

While all of this sounds great, it is almost impossible to know or predict with complete accuracy what will happen in the stock market in the coming decades.

« These are not guarantees, » Krueger said. « Even a small difference of one or two percentage points in long-term returns can change the bottom line by hundreds of thousands of dollars in either direction. »

Then there’s the tax treatment that brings down families who confuse « tax-deferred » with « tax-free. » Unlike a Roth IRA, withdrawals from a Trump account are taxed as ordinary incomeand the account is converted to a traditional IRA the day the child turns 18. This means that repatriating before age 59½ can result in a 10% penalty unless exemptions such as education or buying a first home apply.

« A lot of people hear the word ‘tax-deferred’ and think of it as ‘tax-free,' » Krueger said. « They’re not the same thing. » Still, he added, « I wouldn’t let the tax tail wag the dog. »

But one of the biggest risks that all financial experts have mentioned is not the market or the IRS. This happens at the age of 18, when the child gets full control of the account.

“The day they turn 18, you go from being an account executive to being on the sidelines,” Chancey said. « Legally, practically and completely. » Every family swears they’d never touch it, he said, until a rough year in their 20s.

« Next thing you know, 40 years of tax-free growth quietly solves one temporary problem, » he said.

Hamer’s point is that training must start early.

« Education about money and what it means, what it took to earn it, is just as important as the connection itself, » he said.

Vega acknowledged that the issue of control is the account’s biggest limitation: « Most people aren’t too financially responsible after they turn 18. »

Where does the Trump account fit in with the 401(k) and 529?

Many parents also wonder if Trump accounts will replace a traditional retirement or college savings account. But financial planners said it’s an additive and not a replacement for either of those savings mechanisms.

But advisers said the employer’s 401(k) will respond first.

« If your employer matches your contributions, that’s free money, » Chancey said. « Fund your kid’s Trump account before you’ve taken every dollar of your own 401(k) match and made the costly mistake of dressing up as good parenting. »

From there, the planners usually set up the Trump account and the 529 that followed. Krueger would prioritize a 529 if college is a likely target because of its education tax benefits, followed by a Trump account.

« Its biggest advantage is that the payments don’t require the child to have earned income, » he said. « It helps. I’d like to put the dollars where they work the most. »

At the same time, a growing number of employers sweeten the pot. Including companies Uber, Intel, IBMand Nvidia have promised to contribute to employee Trump accounts as a benefit. Many employers add up to $2,500 per year per employee, which counts toward the $5,000 limit.

« We know that free money is the best money, » Vega said.

When the Trump account actually wins

Financial experts agreed that the advantage of the Trump account is flexibility and timing.

That beats the 529 for families who aren’t sure if their child will go to college because the 529 penalizes out-of-school dropouts. It beats a captive Roth for young children because a Roth requires earned income and most children don’t have a salary, but the Trump account can start growing after birth.

The Trump account won’t win when a teenager starts making real money. The tax-free growth of a custodial Roth usually exceeds the tax-adjusted ordinary income treatment of the Trump account over a multi-decade horizon. And 529s still clearly win for college-bound families in states that offer a meaningful tax deduction.

Financial experts suggested converting the Trump account to a Roth IRA in early adulthood, when the young account holder’s income and tax rate are low. Vega has modeled it for customers. With an annual contribution of up to $2,500 for 18 years, he said, « then the value, intentionally converted to a Roth, is over $2 million at the child’s retirement age » and tax-free.

The bottom line, as Chancey put it: The account is a great tool, but it can’t be considered a comprehensive financial plan.

« The plan is, can the kid really leave the money alone for five decades to do what it’s built to do, » he said. « It’s not something the tax code decides. It’s decided by the child, potentially difficult season at a time. »