‘Trump accounts’ for kids may widen wealth gap

The U.S. Treasury Department reported that as of late July, seven million children under 18 had enrolled in new 530A tax-advantaged savings accounts, informally known as 'Trump accounts.' Notably, 86% of these accounts are held by families with annual incomes below $200,000. Despite the broad uptake, critics express concern that the program's structure and practical benefits may end up widening, rather than bridging, wealth disparities.

Treasury recently proposed further guidance to allow up to $2,500 in annual pre-tax contributions per child through payroll deductions, similar to 401(k) plans. Currently, parental contributions are not tax-deductible. In conjunction with this, over 50 major private employers have committed to contributing up to $2,500 annually per employee to their children's 'Trump accounts,' with these employer contributions excluded from taxable wages.

While the widespread availability of 'Trump accounts' and their potential for investment education are acknowledged, analysts point out that simply providing access is insufficient. Many lower-income families face practical barriers, such as insufficient disposable income, preventing them from fully utilizing even tax-advantaged benefits. For a household earning the median U.S. income of approximately $83,730 annually, setting aside $2,500 per year per child would require a monthly payroll deduction exceeding $200, a significant challenge for many.

Employer sponsorship, while a positive development, could also contribute to inequality. Workers with lower incomes generally have less access to employer-sponsored retirement plans and, crucially, employer matching contributions. There is a risk that the same pattern may emerge with 'Trump accounts,' where higher-earning employees benefit more from employer initiatives, potentially widening the wealth gap further.