Trump Accounts for children launch with S&P 500 fund as default
The new custodial retirement accounts for minors began July 4, with Treasury putting initial contributions into a low-cost S&P 500 ETF.
By Sofia Marchetti · World Affairs Correspondent
3 min read
Trump Accounts, a new type of custodial individual retirement account for children, became available July 4, Fortune reported. The program matters for families because eligible children can receive long-term stock-market exposure, and some newborns will get a federal starter deposit.
According to Fortune, any child who has a Social Security number and is under 18 at the end of the year the account is opened can qualify for an account. The Treasury Department will add $1,000 for children born from Jan. 1, 2025, through Dec. 31, 2028, if they are U.S. citizens and have Social Security numbers.
Families and others can contribute even when a child does not qualify for the federal deposit, Fortune reported. Parents, relatives and friends may put in as much as $5,000 a year in after-tax money before the year the child turns 18, while participating employers may add up to $2,500.
Fortune reported that companies, nonprofit groups, wealthy donors, and state and local governments may also contribute. Michael Dell and Susan Dell announced in December that they planned to donate $6.25 billion, enough to provide $250 to 25 million children, according to Fortune.
The Treasury Department said Thursday that Trump Accounts can receive gifts of publicly traded stock, Fortune reported. Officials said the stock would go to Treasury and then be transferred in line with donor instructions, legal requirements and Treasury guidance, according to Fortune.
At launch, Treasury said contributions will be invested by default in the State Street SPDR Portfolio S&P 500 ETF, known by the ticker SPYM. In its statement, the department said it chose the fund to give broad access to the U.S. stock market while keeping costs below the fee cap set by law.
Fortune reported that the S&P 500 has produced average annual returns of 10% to 11% over the past 30 years, while also swinging sharply from year to year. The index fell 37% in 2008 and rose 29% in 2021, according to Fortune.
The default choice lines up with advice long associated with Warren Buffett, Fortune noted. Buffett has urged many investors to use S&P 500 index funds rather than try to beat the market by selecting individual stocks, and he won a $1 million bet made in 2007 that the index would outperform a group of hedge funds over 10 years, according to Fortune.
In his 2013 Berkshire Hathaway shareholder letter, Buffett said he had advised a trustee to put 90% of the cash intended for his wife after his death into a very low-cost S&P 500 index fund and 10% into short-term government bonds. Buffett wrote that he expected that approach to beat the results of many investors who use high-fee managers.
Other investment choices are expected later, Treasury said, according to Fortune. Those options will include iShares Core S&P 500 ETF, Vanguard Total Stock Market ETF, State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF and iShares Core S&P Total U.S. Stock Market ETF.
Families will have to wait before changing allocations. Treasury said all contributions will stay in the default fund until it adds the account tools that allow parents or guardians to choose among the additional investment options, Fortune reported.
This story draws on original reporting from Fortune.