Treasury Proposes What Trump Accounts May Be Invested In: Cheap Index Funds Only
Eligible funds must track a broad equity index of mostly American companies, use no leverage, charge no annual account fee and carry expenses of no more than 0.1% of the balance.
The Treasury Department has proposed the rules governing what the new children's savings accounts may hold, and the answer is narrower than the asset management industry hoped.
Under the proposal, an eligible investment is generally a mutual fund or exchange-traded fund that tracks an equity index composed mostly of American companies, does not use leverage, charges no annual account fee, and has expenses no greater than 0.1% of the amount invested.
Why the fee cap is the story
An expense ratio of 0.1% is ten basis points. Broad index funds from the largest providers already sit at or below that level; almost nothing actively managed does.
For an account that receives a $1,000 federal deposit at birth and compounds for eighteen years, the difference between 10 basis points and 60 is not academic. Fees compound in exactly the way returns do, and the government is effectively deciding that a program it seeded should not leak value to intermediaries.
It also settles a lobbying fight that has been running since the accounts were created. Fund companies had argued for a wider menu, including target-date and actively managed options. The proposal declines.
What the accounts are
The program opened on July 4 for children who are U.S. citizens born from January 1, 2025 through December 31, 2028, with a one-time $1,000 federal contribution and no income test. Families and employers may contribute up to a combined $5,000 a year, with certain charitable and government contributions outside that cap. Growth is tax-deferred, in the manner of an individual retirement account.
Parents can register through the government portal, claim the account on a return, or enroll at birth through the hospital registration process.
What is still unsettled
Two questions remain open after this proposal. The treatment of withdrawals — what qualifies, when, and at what rate — determines whether families treat these as untouchable or as general savings. And the rules for employer contributions, proposed separately this month, will decide whether this becomes a standard workplace benefit or a curiosity.
Comments on the investment proposal will run through the usual period after publication in the Federal Register, and advisers have been told not to make asset-allocation promises until final rules land.
