Trump Accounts for Children: What Risks Parents Should Know Before Opening One

Trump accounts, formally known as 530A accounts, are a new type of savings account for children under 18 that becomes available starting July 4. Unlike a traditional IRA, these accounts force all savings into U.S. stocks alone until the child turns 18, with no bonds and no diversification allowed.

At a Glance

• Trump accounts (530A accounts) launch July 4 for children under 18
• Funds must stay 100% invested in U.S. stocks until the account holder turns 18
• Stocks have beaten bonds by 5.5 annualized percentage points since the mid 1920s
• A 60/40 stock bond mix returned 9.1% annualized since 1926 versus 10.7% for all stocks
• Data comes from Edward McQuarrie, professor emeritus at Santa Clara University

Why an All Stock Mandate Raises Eyebrows

The rule sounds simple enough: put a child's money in the market and let time do the work. History backs that up for roughly the last hundred years. But zoom out further and the picture gets messier. According to research from McQuarrie, stocks have not reliably outrun bonds across the full sweep of U.S. financial history. For the first two thirds of that history, the two asset classes moved in rough step with each other.

Break the record into three chunks and the pattern gets even more specific. In the earliest third of U.S. history, there was no 50 year stretch in which stocks beat bonds. In the middle third, stocks won about half of those 50 year windows. Only in the most recent third did stocks come out ahead every single time. That last stretch happens to be the one most investors think of as normal.

What a Balanced Portfolio Would Have Done

Even during the stretch when stocks dominated, a blended portfolio held up better than many might expect. An annually rebalanced mix of 60% S&P 500 and 40% long term Treasurys returned 9.1% annualized over rolling 10 year periods since 1926. A portfolio fully invested in stocks returned 10.7% over the same stretch. That gap, 1.6 percentage points, came during one of the best runs equities have ever had.

Diversification, Timing and the Trump Account Structure

The tradeoff here is not really about whether stocks can grow money faster over decades. They often have. It is about what happens to a child's account if it hits a rough 10 or 20 year window right before withdrawal, with no bond cushion to soften the blow. A 60/40 portfolio trims some upside in exchange for smoother years. An account locked into equities alone doesn't have that option until the child turns 18.

Quick Facts

• 530A accounts open to children under 18 beginning July 4
• No bond allocation permitted before age 18
• Stocks vs bonds gap since mid 1920s: 5.5 annualized percentage points
• 60/40 portfolio 10 year annualized return since 1926: 9.1%
• 100% stock portfolio 10 year annualized return since 1926: 10.7%

The Open Question for Families Weighing Trump Accounts

Parents and guardians now have to decide how much weight to put on the last century of stock market history versus the two centuries before it. The rules mean there is no way to hedge inside the account itself while a child is still a minor. Whether that turns out to matter will depend on which decade a given child happens to grow up in, and nobody gets to pick that in advance.