Every baby born between 2025 and 2028 who is a U.S. citizen will be granted $1,000 from the federal government, thanks to “Trump accounts,” an initiative of the “One Big Beautiful Bill” the president signed into law on July 4.
The Department of the Treasury will provide the funds for these accounts, traditionally known as “baby bonds.” After that initial cash infusion by the government, the bill says family members or others can contribute a maximum of $5,000 a year to the account. Employers of the recipients’ parents can contribute up to $2,500 a year. Money is eligible to be spent on education past high school, a small business startup, or purchasing a home once a recipient turns 18 (though financial planner Ben Henry-Moreland of Kitces.com told CNBC there will be a 10% tax penalty for withdrawals before the age of 59½). The Trump administration claims the accounts will contribute substantially to the financial well-being of the next generation. A White House press release said the program will “afford a generation of children the chance to experience the miracle of compounded growth and set them on a course for prosperity from the very beginning.”
Baby bonds aren’t a new initiative. Despite having a history of bipartisan support, experts are divided on whether baby bonds can live up to their promise to change lives for all young Americans.
Some commentators echo the Trump administration’s argument that these accounts will transform the lives of a generation of children. Dell CEO Michael Dell said in a statement earlier this year that, “With these accounts, children will be much more likely to graduate from college, to start a business, to buy a home, and achieve lifelong financial stability.” Brad Gerstner, founder and CEO of the investing firm Altimeter Capital, said at a CNBC summit that the initial deposit plus modest, regular investments by families could yield $270,000 by the time a recipient turned thirty. Marc Cadin, the CEO of Finseca, wrote in an opinion piece for USA Today that the government seed money alone could increase to approximately $8,000 in 20 years and upwards of $500,000 by retirement age, citing an analysis by the Milken Institute, a nonpartisan think tank that is perceived as slightly left-leaning. “It’s life-changing money, particularly for the tens of millions of families that can’t afford to save or invest early,” Cadin wrote.
It’s true that because of compounding interest, an initial $1,000 could grow over two decades — a point when account holders might want to take out money for higher education or another purpose — to somewhere in the neighborhood of $8,000, depending on how well the stock market does over that period.
But some critics point out there’s a gulf in potential earnings between families at different economic levels. Madeline Brown, a senior policy associate at the Urban Institute, told The Connecticut Mirror that babies born into low-income families won’t see the same benefits from the Trump accounts as those born into wealthier families.
“The reality for American families is that a third of them don’t have $2,000 in an emergency savings account. So the idea that every family is going to be able to contribute to this type of program is just not borne out by the reality of the financial situation of many American families,” she noted. “I don’t see a way that this reduces wealth disparities,” she added in a separate interview with the New York Times.
For lower-income families, the financial benefits of the accounts over time will be limited and not life-changing, Darrick Hamiliton, the co-author of a 2010 paper about baby bonds, told NPR. “A thousand dollars, even if garnering interest over time, is not going to provide enough to satisfy what’s needed for a down payment to get into an asset to build wealth,” he said.
Hamilton added that by excluding many immigrants from the benefits, the program “structures inequality.” To receive the $1,000, babies must be U.S. citizens with Social Security numbers, which means undocumented immigrants as well as those who immigrate legally after birth will be ineligible.
The legislation has also faced criticism from some Democrats for another reason. In July, Treasury Secretary Scott Bessent said in at a Breitbart News forum that the savings program “is a back door for privatizing Social Security,” though he swiftly reversed course, writing on X that the administration “is committed to protecting Social Security,” and that the newborn savings accounts are an additive measure rather than a potential replacement.
Chuck Schumer, the Senate Democratic leader, labeled Bessent’s initial statement “a stunning admission,” saying “Bessent actually slipped, told the truth.”
Privatizing social security isn’t a new idea, but it’s never been a popular one.
The Senior Vice President of Campaigns of AARP (American Association of Retired Persons) John Hishta issued a statement regarding Bessent’s comments.
“AARP condemns Treasury Secretary Scott Bessent’s endorsement of a ‘backdoor’ to Social Security privatization.”