America's newborns to get $1,000 investment accounts
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America's babies are becoming investors, each to receive $1,000 seed accounts via the reconciliation bill signed last week by President Trump.
Why it matters: This could expand financial flexibility and literacy for future generations, given the power of compound interest, albeit on the dime of current taxpayers.
Catch up quick: Axios first reported on this idea 18 months ago, as the brainchild of venture capitalist Brad Gerstner (with inspiration from past concepts, like Cory Booker's "baby bonds").
- It sounded more aspirational than attainable, but had a legislative opening due to sunset provisions in the 2017 tax bill.
- "There can be value in taking comically big swings on things that matter instead of aiming for safer, incremental changes," says Matt Lira, a veteran Republican operative who Gerstner hired to lead a nonpartisan lobbying effort.
How it works: The bill creates a new class of investment account in the tax code.
- Every American born between 2025 and 2028 automatically receives an account with $1,000 from the U.S. Treasury, which will be invested in a low-cost index fund.
- It would be the property of the child, held in a custodial trust, and money cannot be touched until the child turns 18. At that point it automatically becomes a traditional IRA, although money can be pulled out for uses like education, starting a business, or buying a first home.
- Americans under 18 but born before 2025 also are eligible for the accounts, although not the $1,000.
- Every account can take up to $5,000 in additional contributions per year, including up to $2,500 on a tax-free basis by a parent's employer.
- "My dream scenario is people use a decent percentage of it to get a head start in life, and the remainder for long-term planning," Lira says.
Zoom in: There also is a chance that these accounts will unlock new forms of philanthropy.
- Michael Dell, who helped champion the Invest America Accounts (since renamed Trump Accounts, natch), tells Axios that he could envision wealthy individuals choosing to make major gifts to entire ZIP codes or other geographies, via a mechanism that the Treasury Department has been charged with developing.
- He declined to get specific, but it didn't sound like he was just spitballing.
Look ahead: It's one thing to write the rules and quite another to implement them.
- The Treasury Department needs to launch RFPs, build apps, etc. And maybe create educational lesson plans or curriculum.
- Lira says that he appreciates healthy skepticism of gov-built tech, but has confidence that the private sector will be able to provide easy-to-use apps and that Treasury will be able to build the API gateway (much as it did for TurboTax and the like).
- He notes that Robinhood built a viable test app for these accounts in just 36 hours.
The bottom line: The program will need to be renewed, reformed, or renounced after 2028. And, depending on who's in charge, renamed.
