President Trump child savings account proposal: What Oklahoma families should know

A new budget proposal from former President Donald Trump is gaining attention for offering financial incentives to families who have children during his current term. Kristin Afelumo with H.E.R. Planning breaks down how the proposed “Trump accounts” would work if passed, and what Oklahoma parents should know.

How would this look if it passes?

“Exactly. So the way I understand it, if people have children during this current Trump term, they'd be eligible for these new Trump accounts. And how they're funded is partially by the U.S. government. And partially, I think there's a private funding aspect as well.”

“But they would get a thousand dollars in an account for the child that they could access later in life, starting at age 18.”

“Additionally, as a parent or a family member, you can contribute up to $5,000 a year to this account, bringing your total funding in year one to $6,000.”

What is the goal of creating this account?

“Well, the goal is to get kids off to a better financial start. So imagine you have a child of the next couple of years. You can start funding an account like this, and they can use it for their first home purchase, to purchase a business, for vocational school.”

“It's not exactly like the 529 plan, which is specifically to be used for education, mostly college. So it's an account that gives a little bit more flexibility.”

“If the child happens to get all the way to age 30, and hasn't spent the money, they can use it for any purpose.”

This is not a direct cash benefit to parents, correct?

“Exactly. It's for the benefit of the child ultimately.”

How would this be taxed?

“So it's very similar to a 401k except that you make after-tax contributions. So after you get your paycheck every month, you can write checks into this new account, you get up to $5,000 a year.”

“How it's similar to a 401k is if you take the money out prior to the age 18, there's a 10% penalty and you also have to pay. Whether it's income taxes or capital gains, it's a bit complicated, but know that taxes are involved if you take the money out and use it for a purpose that's not what the account is set up for.”

Are there limits on how much you can have in the account?

“I don't know if there's ultimately a limit to what you can have in the account.”

“What we know so far is that there'd be a $5,000 contribution limit, that the money could be invested only in an index fund that tracks U.S. stocks only. So kind of a slim area that you can invest in in the overall stock market.”

“It's meant to just get kids off to a good start, but also have them investing in the United States.”