Latest shift ties children's wealth building directly to the fate of particular companies
By Richard Rubin and Ashlea Ebeling
With two sweeping late-September changes, the Treasury Department transformed the Trump Accounts program into something new and extraordinary: A universal child investment vehicle where millions of kids will receive donated stocks in individual companies.
The catch? Children and their parents can't pick the stocks or reject donated shares, and they can't sell for five years.
Before last week, Trump Accounts were a novel, optional index-fund investment for children with about seven million sign-ups. The government was seeding newborns' accounts with $1,000. Employers were pledging contributions to workers' children. Philanthropists such as Michael and Susan Dell were making cash donations.
Now, after the Treasury Department turned on auto-enrollment and enabled stock donations, Trump Accounts look entirely different. The government created more than 60 million new accounts last week, achieving the universal reach that progressive advocates for broad wealth-building have envisioned for decades. And officials simultaneously blessed an untested idea pitched by wealthy prospective donors: pushing individual stocks directly into kids' accounts.
The initial rollout of the program encouraged children to be invested broadly in American companies. The latest shift ties kids' wealth building directly to the fate of particular companies, depending on who donates. The administration allowed stock donations to encourage large contributions, and officials signaled that several people are poised to make multibillion-dollar gifts of stock because of the new rules. When that happens, stocks will start flowing into children's accounts.
Charities can target children by age, geography or both
Under the rules that took effect last week, charities controlled by wealthy people -- with Treasury Department approval -- can put individual stocks into the accounts of thousands or millions of children. They can target groups of at least 5,000, sorted by age, geography or both.
Other contributions -- from parents, employers and the federal government -- must be cash that gets invested in low-cost index funds. Stock donations, however, generally can't be sold for five years under the rules. Children and parents have no power to refuse donations, though the administration is fielding comments on whether it should let people opt out of Trump Accounts.
So far, only one donor has announced a major stock donation. Gwynne Shotwell, president of SpaceX, is pledging more than two million shares to children between ages 11 and 17 who live in lower-income areas. Her July statement came after the government said it would allow stock donations but before September's rules clarified that shares wouldn't be liquidated and invested in index funds.
Congress created Trump Accounts in last year's tax-and-spending law, which says they can invest only in low-cost index funds. Treasury officials argue that the prohibition doesn't apply to stock donations because account funds aren't used to purchase the stock.
Allowing stock donations is contrary to congressional intent, said Adam Michel, director of tax policy with the libertarian Cato Institute.
"It's pretty clear Congress intended it to be cash donations going in," he said.
In defending the rule allowing stock gifts, the Treasury Department contended that the policy would encourage many more donations, outweighing the additional risk and volatility. The government said explicitly that strengthening ties between kids and particular corporations was part of the appeal to prospective donors.
"Donors are attracted by the hope that a stock contribution with a five-year holding period may lead recipients and their families to feel that they have a stake in the fate of the corporation to a greater extent than if the child's holdings of the corporation were only through an index fund," the rules said.
Mark Iwry, a former senior Treasury official who led national retirement policy in the Clinton and Obama administrations, said auto-enrollment marks a major improvement but that stock donations raise potential concerns.
"I applaud this administration," he said, "provided these measures are implemented responsibly, in good faith, and free of conflicts of interest, corruption, and ulterior motives."
New possibilities
The combination of auto-enrollment and stock donation opens up possibilities that weren't previously imaginable. Consider some hypotheticals for how donations -- which would be real assets in children's accounts -- could be used or leveraged:
Executives could combat policy proposals by invoking the effects on their child shareholders. If every 9-year old-owned two shares of a bank, a corporate-tax increase or tightened regulation would hurt the kids.
A CEO whose company wants to build a data center in a county could put stock directly into accounts of the area's children as an inducement for support or a reward for approval.
An ideologically minded donor could make families own shares in companies they might oppose -- giving stock of firearms makers to Manhattan's 4-year-olds or casino company stock to Utah's 8-year-olds.
People with legal or ethical prohibitions against family ownership of individual stocks -- like employees of regulatory agencies -- would own them unless the government allows exceptions.
The rules say the Treasury secretary can approve or reject donors' requests using "objective criteria," such as cost, feasibility and conflicts with other federal laws. The administration hasn't detailed those rules yet.
Need for 'strong guardrails'
A Treasury official said the program's goal is to build long-term wealth, particularly among low-income families. Donors engaging with the government are motivated by a desire to help children get a head start on their financial future, the official said.
"Treasury needs to really have some strong guardrails here," said Lily Roberts, vice president of policy and programs at the Washington Center for Equitable Growth, a progressive group. She said she worried that executives could offload stock if they expected the value to drop.
Donors don't receive tax breaks when their foundations give money to Trump Accounts, so the new rules don't reduce their tax bills. They can, however, get income-tax deductions when they donate stock to foundations.
Trump Accounts turn into individual retirement accounts when children turn 18. Before then, money can get into accounts several ways. The government is putting in $1,000 for each baby born from 2025 through 2028, though that payment won't happen in auto-enrolled accounts until parents or guardians claim them. Parents can donate up to $5,000 a year. Employers can donate and let workers fund accounts with payroll deductions.
The general donations, from the Dells and others, are uncapped. Before auto-enrollment, 1.2 million children had received $250 each from the Dells' gift, according to their foundation. They had pledged enough cash for 25 million children born between 2016 and 2024, in zip codes with median family income below $150,000.
Until auto-enrollment, sign-ups were increasing modestly. Some Trump opponents resisted signing their children up for something with the president's name. Now, they all have accounts.
"All their efforts around opt-in, Super Bowl ads, outreach, commercials, everything, they only got to 7.2 million accounts," said Ray Boshara, a senior policy adviser at the Aspen Institute and Washington University in St. Louis. "Flipping the switch is really a game-changer."