Nearly 70 million American children are now beneficiaries of tax-advantaged investment accounts, courtesy of President Donald Trump, with $1,000 invested in index funds for those eligible based on their date of birth and, if promises come true, individual stocks, including Elon Musk’s SpaceX. Musk declared on October 19 that he will donate $10.66 billion to “every child in America,” and much more in the future, in the form of one share of SpaceX stock per child. Must Read In response to a question about whether donations would be made through Trump accounts, Musk simply said, “Yes.” Posts 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 these seemingly benevolent contributions have a downside. Free Capital, but with a Catch Why would anyone even think of complaining about free assets? Part of this comes down to potential motivations and who might benefit from the launch besides the recipients. If shares are donated through an appropriate vehicle, such as a foundation, donors could obtain appropriate charitable deduction benefits. Adding SpaceX (NASDAQ:SPCX) stock to Trump accounts also allows the company to avoid a portion of capital gains taxes on its growth. Then there are the caveats about supplemental 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 under most circumstances, barring rare events such as a stock’s formal delisting, even if the value is plummeting. A CNBC report notes that these restrictions generally help donors by, on the one hand, avoiding large sell-off events for their company’s stock. In a written statement, a Treasury official told CNBC: “The top donors we have recruited are motivated by a desire to help children build generational wealth and get a head start on their financial future.” In addition to not being able to instantly sell their shares, families cannot select or reject stocks like SpaceX even if they wish, and they cannot opt out of the program entirely 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, such as SpaceX, and invest in the United States in general. As one Washington political adviser told the New York Times, “the research was overwhelmingly clear that automatic enrollment is the way to achieve full participation, especially for low-income people, and I think Treasury listened.” Most 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. Read more: Vanguard reveals what’s coming for US stocks, and it could be bad news for this group of investors. What Parents Should Know About Trump Accounts To maximize the benefit of a Trump account, parents should claim the fund, which allows them to receive the initial $1,000 federal deposit (if they meet the criteria), add more holdings themselves, and get matching contributions from employers. So far, pledged donations vary and include Musk’s recent pledge as well as Michael and Susan Dell’s (Dell Technologies) $250 per child donation, which targets children who didn’t meet the birthdate requirements of the $1,000 grant and prioritizes low-income areas. Before this month’s systematic mass registration, parents of only 7 million to 10 million children had chosen to join the program, in part because, experts say, low-income households may not have been aware of it or been more confused by it and therefore more cautious overall. At the end of October there was also talk of expanding the plan to Americans up to 39 years old. What to read next Want more information about Moneywise? Join over 250,000 readers who receive our best stories and exclusive interviews delivered to their inbox every week. This article originally appeared on Moneywise.com with the title: Elon Musk’s $10.5 billion SpaceX gift to kids has a catch: Families can’t say no and may have to wait 5 years to withdraw it. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
