The US Treasury has settled on the investment lineup for Trump Accounts, the government's new child savings program, selecting two BlackRock exchange traded funds as the default holdings and naming a Vanguard fund as an alternate option, just days ahead of the program's July 4 launch.
BlackRock's iShares Core S&P 500 ETF and its iShares Core S&P Total US Stock Market ETF will serve as the primary investment vehicles, both carrying rock bottom expense ratios of 0.03 percent. The Vanguard Total Stock Market ETF was named as the alternate fund families can choose instead.
How the accounts work
Trump Accounts were created under last year's tax and spending law and function as a form of individual retirement account for children under 18. The Treasury will seed every account with 1,000 dollars for children born between January 1, 2025 and December 31, 2028 who hold a valid Social Security number, funded automatically once a parent or guardian completes the enrollment paperwork.
Parents, relatives and other individuals can add up to 5,000 dollars a year to an account until the child turns 18, though none of those contributions are tax deductible while the child remains a minor. Employers are also allowed to contribute as much as 2,500 dollars a year to an employee's account or that of an employee's dependent, and that money is not counted as taxable income for the worker. Investment gains inside the account grow tax deferred, meaning no tax is owed on the earnings until money is eventually withdrawn.
A large new pool of index money
With millions of children expected to qualify for the seed deposit over the life of the pilot program, the Treasury's choice of default fund manager hands BlackRock a head start in what could become a sizeable, steadily growing pool of long term index money, even as Vanguard remains in the mix as the named alternative.
