Analyzing the “Trump Accounts,” Their Challenges and Potential - lawliberty.org
The “One Big Beautiful Bill Act” brought a slew of welcome benefits for seniors, from relief from some of the tax burden on Social Security benefits, to income tax relief for workers with tip income, to the temporary ability to deduct interest on personal-use passenger vehicles. OBBBA also introduced a new savings vehicle — “Trump Accounts” —that would help younger individuals build a solid financial future. This latter item is particularly significant in a broader retirement-planning context, given the frequent concerns about a lack of wealth accumulation for retirees’ “golden years.”
As specified in the OBBBA, Trump Accounts will be automatically established for children born as US citizens with Social Security numbers between January 1, 2025, and December 31, 2028. At birth, these account holders receive a one-time $1,000 deposit from the federal government, and parents and others can contribute up to $5,000 (with inflation adjustments) per year to the account until the child reaches age 18. There are also provisions for employers to make contributions of up to half the annual amount. While the accounts grow tax-deferred, withdrawals for certain qualified uses can be made at tax-preferred rates.
One Key feature of Trump Accounts is that they are treated as individual retirement accounts with their balance invested in private equity markets. This aspect of the OBBBA provision came under scrutiny shortly after the Act’s passage when Treasury Secretary Scott Bessent suggested the Trump Accounts could be considered “a backdoor for privatizing Social Security,” given the potential accumulation of hundreds of thousands of dollars for retirement.
Taking a Look at Reality
Thomas Savidge, a research fellow at the American Institute for Economic Research, suggests that “Trump Accounts can either be just another layer of complexity in the tax code, or it can be a helpful tool in a set of necessary policy reforms.” In a post on lawliberty.org, Savidge outlines the potential limitations of the Trump Accounts and opens the discussion on how the concept might morph into universal savings accounts (USAs) that could simplify the retirement savings landscape. As such, the Trump Account concept could become a significant part of the reforms needed to preserve Social Security for future generations of retirees.
Savidge’s insightful piece fits well with economist Romina Boccia’s recommendation for a BRAC-like commission to design long-term reform measures for Social Security. As Savidge notes, Trump Accounts are not a “cure-all” but rather a potentially helpful part of Social Security policy reform.