Q&A: Investment Opportunity for Kids

Q&A: Investment Opportunity for Kids

With U.S. Sen. Chuck Grassley

Q: How do the new Trump Accounts work?

A: The Working Families Tax Cuts Act signed into law last July 4 included a new investment benefit for U.S. citizens under age 18. Moms and Dads work tirelessly to provide for their families and make ends meet. Putting food on the table, filling the gas tank, paying for child care and pinching pennies to take a summer vacation make it challenging to budget for their own retirement, let alone their kids' long-term financial security.

The landmark tax law created tax-advantaged investment accounts to help build financial security for kids and foster financial literacy in the next generation. There's also an added benefit for parents who welcome a new baby into the family. The U.S. Treasury will contribute $1,000 for every American child born between Jan. 1, 2025 and Dec. 31, 2028. The account is in the child's name and parents serve as the custodian of the funds until the child turns 18. Parents, family members and friends may deposit up to $5,000 each year to a child's account to maximize growth. Employers may choose to contribute up to $2,500, on a pre-tax basis which counts towards the $5,000 annual limit. Government and tax-exempt entities may also make contributions to a designated class of beneficiaries, and such contributions do not count against the contribution limit. Trump Accounts will launch on our nation's 250th birthday, July 4, 2026. To participate, parents need to complete and submit IRS Form 4547 online at https://www.irs.gov/trumpaccounts. To create an account, a valid Social Security number for each child is required. A mobile app is also available for download to manage and keep tabs on the balance, contributions and investment activity. All funds are automatically invested in American companies.

At age 18, the money accrued in the investment account belongs to the child. After that, accounts are generally governed by the same rules as a traditional Individual Retirement Account (IRA). The money can continue to grow and be distributed for any purpose penalty free after reaching age 59 ½. Prior to this, distributions may be made penalty free for certain purposes, including for qualified higher education expenses or to make a first-time home purchase. When the time comes, it's a good idea to consult with tax professionals before making withdrawals to avoid penalties. Remember, the balance grows over time, with or without contributions. These investment accounts build upon the strength of the American economy to give kids a head start on the American Dream. Early saving and investing will help the next generation climb the ladder of economic mobility and achieve financial security.

Q: Which of the nation's founders put his money where his mouth was for America's future?

A: In more ways than one, Benjamin Franklin shaped America's path to freedom, prosperity and opportunity. A key architect of the Declaration of Independence, Franklin was the oldest delegate and shrewd diplomat who helped shepherd our nation's founding charter to its adoption on July 4, 1776. He was among 56 delegates to sign the historic parchment at the Pennsylvania State House in Philadelphia. In addition to enshrining the American experiment and "self-evident" truths into the Declaration of Independence, Franklin pursued a 200-year financial experiment to benefit young tradesmen and fund public works. He understood the power of compound interest. He famously said, "Money makes money. And the money that makes money, makes money."

A man of many talents - civic leader, inventor, statesman and entrepreneur - he also was a philanthropist. As we celebrate America's 250^th birthday, one of Franklin's historic bequests to future Americans illustrates his optimism for America. In his will, he left 1,000 pounds sterling each for his birth city, Boston, as well as his adopted hometown of Philadelphia. Recognizing the power of education and investment for the public good, he required the endowment funds be invested to gather interest for 200 years before they could be disbursed without restriction. For the first 100 years after his death, one-quarter of the funds were to be used to make low-interest loans to young apprentices to help start their business. The interest was reinvested to grow the principal. After 100 years, the remaining three-quarters of the endowments would be used for public works in each city. By 1990, the Franklin trusts matured and his gift had grown to millions of dollars.

Likewise, the Trump Accounts deliver a dose of optimism and enterprise for young Americans. I encourage Iowans to take advantage of this opportunity to sow seeds of prosperity for the next generation.

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