Trump Account: Does the New Policy Apply can it become an effective tool for children's education savings?

Recently, the United States has introduced a new tax incentive program that grants every newborn born between 2025 and 2028 an investment account called a "Trump account". This plan initially seemed attractive, especially against the backdrop of increasing pressure on American parents to save for their children's education and future. The $1000 seed funding provided by this account, along with its tax incentives, seems to offer parents a new way to manage their finances. However, upon careful analysis, it is not difficult to find that the actual effectiveness and benefits of this new policy are far inferior to other existing tax avoidance savings tools, and may even bring unnecessary complexity and hidden dangers.

However, the problem is that the actual benefits of these tax incentives appear relatively insignificant compared to other more practical savings tools. Although the Trump account provides a starting capital for children, the tax benefits it offers are more limited compared to other accounts. For example, if the funds in Trump's account are used for eligible purposes such as education, entrepreneurship, or home purchases, they will only be taxed as long-term capital gains when withdrawn, which is relatively low. But if the funds are used for other non qualified purposes, they will be considered as ordinary income and face higher tax rates. For the vast majority of families, this structure does not seem to bring any substantial benefits.

At the same time, there is significant uncertainty regarding the applicability of Trump accounts to families. For example, if a family invests in a Trump account, but ultimately their children do not choose to attend college or buy a house, the funds in the account may be used for non eligible purposes, resulting in higher ordinary income tax rates. In this situation, it is better for families to directly choose to invest in ordinary brokerage accounts to avoid the various complexities and potential tax issues of Trump accounts.

The proposal for Trump's account was originally intended to provide every child with an investment opportunity, helping them understand the workings of the capital market from an early age and inspiring their investment awareness. Texas Senator Ted Cruz is enthusiastic about this proposal, believing that such accounts can help children better understand the free enterprise system and promote capitalist values throughout society.

However, the gap between the ideals of this theory and reality may be the biggest challenge facing Trump's account. Although the plan may provide children with more opportunities for wealth accumulation in name, at the implementation level, it not only lacks consideration for broader family needs, but may also lead to a decrease in interest from many families due to complex rules and lower tax-free extraction benefits.

Overall, although the Trump account provides some tax benefits to families to some extent, its actual value and attractiveness are far less than existing tax benefit accounts, especially in the context where American parents mainly focus on education and retirement savings. For most families, investing in a Trump account may not be a priority, especially if their children are planning to go to college or the family already has enough retirement savings. More importantly, the complex rules and potential tax risks attached to Trump's account may make the originally simple savings plan cumbersome, and instead affect the family's investment decisions. Although the underlying philosophy is commendable, there may be more areas for improvement in policy design. For parents, rational analysis of various savings options and choosing the most suitable investment tool for their family is a wiser decision.