New federal savings accounts offer $1,000 for kids
(CLAIR | Simi Valley, CA) — Families with children born between January 2025 and December 2028 now have access to a federal savings program that deposits $1,000 into an investment account for each eligible child at no cost to open one.
The accounts launched fully on July 4 after the U.S. Department of the Treasury rolled out an app that lets parents track balances, link bank accounts and set up recurring contributions. Treasury Secretary Scott Bessent said in a statement that the accounts give "every child a stake in the American Dream from day one."
The program was created under the One Big Beautiful Bill Act, which President Trump signed on July 4, 2025, according to the Bipartisan Policy Center, a nonpartisan research group based in Washington, D.C. It marks the first federal child savings account of its kind in the United States.
Families can track investment performance as of Monday, July 6, per Treasury.
How the accounts work
Any child with a Social Security number can get an account opened for them before they turn 18. Only U.S. citizens born between 2025 and 2028 qualify for the $1,000 government deposit.
The accounts are run by BNY, a large bank chosen by the Treasury Department, which picked Robinhood to handle the investing side. Families can later move the account to a different bank if they choose.
Only a legal guardian, parent, adult sibling or grandparent can open an account, in that order of priority, per Treasury's proposed rule. Families sign up at TrumpAccounts.gov, and there is no cost to enroll.
The $1,000 government contribution can be claimed any time from birth through the year the child turns 17, and it does not count against other contribution limits. Only whoever claims the child as a dependent on their taxes can claim that $1,000, according to the Bipartisan Policy Center.
Beyond the government seed money, parents, relatives and friends can add up to $5,000 a year in after-tax dollars. Employers can also contribute up to $2,500 annually per employee toward a dependent's account, and those contributions don't count as taxable income for the worker.
Charities and government agencies can also chip in, without the $5,000 cap that applies to families. But they can't pick and choose individual kids. Federal rules require them to split the money evenly across an entire group, like every eligible child in the country, every eligible child in a state, or every child born in a certain year.
All the money must be invested in low-cost index funds tracking U.S. stocks, and it stays locked up until the child turns 18. At that point, the account automatically becomes a traditional IRA.
Where the accounts fall short, according to critics
The concept behind the accounts, giving families and outside contributors an early vehicle to invest on a child's behalf, draws support across the political spectrum. But how the accounts are built has drawn scrutiny, particularly from the Cato Institute, a libertarian think tank in Washington, D.C.
In a June 2026 policy analysis, Cato's Director of Tax Policy Studies Adam Michel wrote that ordinary family contributions to an account may actually leave a child worse off than if that same money had gone into a regular taxable brokerage account.
The reason comes down to how the earnings get taxed. Family contributions go in after tax, just like a regular brokerage account. But when the child eventually withdraws the money, only the original contribution comes out tax-free. Any investment growth on top of that gets taxed as regular income, not at the lower capital gains rate a brokerage account would get, according to the Cato Institute.
Michel's report includes an example showing a $5,000 investment left to grow for 30 years would net a family about $2,451 less in an account than it would in a comparable taxable brokerage account, solely because of that tax treatment.
The report also points out that early withdrawals before age 59 and a half trigger a 10% penalty on top of ordinary income tax, with exceptions limited to specific circumstances like education costs, disaster recovery or a first home purchase, according to both Cato and the Bipartisan Policy Center.
Michel argues this kind of restriction tends to hit lower-income families hardest, since they're statistically more likely to need early access to savings during a financial emergency.
Michel's proposed fix would drop the government subsidy model altogether in favor of a simpler, more flexible account, similar to systems already used in Canada and the United Kingdom, that lets families invest and withdraw funds without as many rules and penalties.
Weighing the free money against the tradeoffs
None of this changes the fact that the $1,000 government contribution, along with anything added by an employer, charity or government entity, is money families weren't going to get otherwise.
The Bipartisan Policy Center notes the real financial edge in these accounts comes from tax-deferred growth, meaning investment gains compound without being taxed each year, and the ability to shift between investments without triggering capital gains taxes along the way.
Where it gets more complicated is when families start adding their own money on top of that. According to the Bipartisan Policy Center, families adding their own money might do better elsewhere.
A 529 education savings plan still carries strong tax perks and now allows up to $35,000 to be rolled into a Roth IRA. A standard brokerage account could also outperform an account in some cases, since its investment gains are taxed at the lower capital gains rate instead of ordinary income tax.
For most local families, claiming the $1,000 costs nothing and requires only a short sign-up process at TrumpAccounts.gov. Whether to add family money on top of that seed contribution is a separate decision, one that depends on a household's broader savings priorities and how those dollars might perform elsewhere.
For details on how to sign up for an account, go to https://trumpaccounts.gov/.
