Nearly 70 million American children now benefit from tax-advantaged investment accounts, courtesy of President Donald Trump, with $1,000 invested in index funds for those who qualify based on their date of birth — as well as, if the promises come to fruition, individual stocks, including Elon Musk’s SpaceX.
Musk said on October 19 that he would give $10.66 billion to “every child in America,” and much more, in the form of one SpaceX share per child.
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In response to a question on X about whether donations would be made through Trump accounts, Musk simply replied: “Yes.” The messages from Trump and Treasury Secretary Scott Bessent also indicate that these shares will land in Trump’s accounts, with Trump praising Musk for his “incredible generosity in giving SpaceX stock to millions of American children.”
But there is a catch to these seemingly benevolent contributions.
Free equity, but with a catch
Why would anyone think to complain about free assets? This depends in part on the potential motivations and who might benefit from the deployment, apart from the beneficiaries.
If the shares are donated through an appropriate vehicle, such as a foundation, then the donors could benefit from the appropriate charitable deductions. Adding SpaceX (NASDAQ: SPCX) stock to Trump’s accounts also allows the company to avoid much of the capital gains taxes on its growth.
Then there are the reservations regarding additional capital.
On the one hand, account holders may be subject to a minimum holding period of five years or until the end of the calendar year in which the beneficiary turns 17, whichever comes first. This means they can’t sell it in most circumstances, aside from rare events such as a stock being formally delisted, even if its value falls. A CNBC report points out that these restrictions generally help donors, including avoiding large liquidations of their company’s stock.
In a written statement, a Treasury official told CNBC: “The major donors we have engaged are motivated by a desire to help children build generational wealth and get a head start on their financial futures. »
In addition to not being able to instantly sell their shares, families cannot select or decline stocks like SpaceX even if they want to, and cannot opt out of the program completely once enrolled.
That said, Treasury is positioning the recent automatic enrollment as a way to give all children the opportunity to own a stake in particularly successful American brands, like SpaceX, and to invest in America in general.
As one Washington policy adviser told the New York Times, “the research has shown very clearly that automatic enrollment is the path to full participation, especially for low-income people, and I think Treasury has listened.”
The bulk of the holdings in the accounts, which are technically a special type of IRA known as a Section 530A account, will remain in low-cost exchange-traded funds rather than individual stocks.
Learn more: Vanguard reveals what’s coming for US stocks – and it could be bad news for this group of investors
What parents need to know about Trump accounts
To maximize the benefits of a Trump account, parents must claim the fund, which allows them to receive the $1,000 federal start-up deposit (if they meet the criteria), add additional assets on their own, and get matching contributions from employers.
So far, pledged endowments vary and include Musk’s recent vow, as well as Michael and Susan Dell’s (of Dell Technologies) $250 per child donation, which targets children who do not meet the date of birth requirements for the $1,000 grant and prioritizes low-income areas.
Before the systematic, mass enrollment this month, parents of only 7 million to 10 million children had opted to join the program, in part because, experts say, lower-income households may not have been aware of it or were more confused, and therefore more cautious overall.
Since the end of October, there has also been talk of extending the plan to Americans up to age 39.
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This article was originally published on Moneywise.com under the title: Elon Musk’s $10.5 billion SpaceX gift to children has a catch: Families can’t say no – and may have to wait 5 years to cash out.
This article provides information only and should not be considered advice. It is provided without warranty of any kind.
