Michael Dell has a new gift idea for the kids in your life. Skip the socks. Put $25 in the child’s Trump Account instead. He and his wife, Susan, are putting $250 into 25 million of them. Elon Musk says he’ll give millions of kids a share of SpaceX, worth about $150 today.
The Journal’s Erich Schwartzel and Konrad Putzier report that the richest Americans have found a new way to give. Instead of a check to a charity or a university, it’s a few hundred dollars per child, straight into an account. Ray Dalio and other billionaires are in. Brad Gerstner, the tech investor who dreamed up the program in the fall of 2020, calls it a new social contract. He and a friend put $250 into the accounts of 3,000 students at a Bronx school. John D. Rockefeller handed dimes to schoolchildren in 1928. Andrew Carnegie paid for 2,500 libraries. Now the gift arrives as a push notification on a parent’s phone.
Here’s how the accounts work. Anyone can deposit money into a Trump Account, which is an IRA, a tax-favored savings account, set up for a child under 18. Babies born between 2025 and 2028 get an automatic $1,000 deposit. The money is locked until the child turns 18. The White House says nearly 70 million accounts have been created. The Journal’s math says the $1,000 seed could grow to more than $5,800 in 18 years, or about $3,400 in today’s dollars. That assumes the stock market’s average return and inflation over the past 100 years. The past is a reference, and it’s no promise.
Why shares instead of cash
The program has fans in both parties and critics too. A historian the Journal quotes calls the timing, just before the midterm elections, completely political. The accounts carry the president’s name, and the gifts make headlines. There’s a tax angle as well. Musk founded SpaceX, so most of what his stake is worth today is gain. Selling would trigger a huge capital-gains tax, the tax on the profit from a sale. Donating the shares skips that tax, and he can still deduct what the shares are worth today, Boston College law professor Ray Madoff explains. The Journal also notes that a share giveaway builds a base of SpaceX holders who can’t sell for years.
Our read
This is time value of money (M3), with a tax lesson on the side. The $1,000 to $5,800 math isn’t magic. It’s 18 years of leaving the money alone. The same math works in any account you can open for a child today. A 529 plan, a custodial account, or a Roth IRA once the kid has earned income all do the job. The Trump Account’s trick is that relatives can find it and fund it easily. A Georgia mother in the story now plans to ask family to put money in her sons’ accounts instead of handing the boys cash. That’s a habit worth copying. The second lesson belongs to the billionaires. Giving shares that have gone up in value to a charity can beat giving cash, because the gain on those shares is usually never taxed. That works for a regular family too, at a much smaller scale. Many charities take stock directly, and so do donor-advised funds, which are charity accounts you fund now and give from later.
If there’s a child in your plan, a grandchild, a niece, a godson, pick the account you’ll feed and make it the default birthday gift. This week, check one thing. Look at what you gave the kids last year and ask what’s still around. The toy is gone. The $25 in an account is still there, and it’s working. We check the forecast before the picnic, and the umbrella rides in the trunk.