A MARTÍNEZ, HOST:
All right. For more on what parents should be thinking about when it comes to these Trump accounts, we've called up Stacey Vanek Smith. She's a reporter for Bloomberg's Businessweek and host of the podcast "Everybody's Business." So, Stacey, we've been hearing this plan be described as individual retirement accounts, IRAs for kids. I don't know what kid is looking forward to retirement. How should their parents be looking at these accounts?
STACEY VANEK SMITH: Well, it really does function a little bit like a retirement account where you can make tax-free contributions - the child's family. Even an employer can make contributions into these accounts. And then once the child turns 18, they can start withdrawing these accounts for things like we just heard, a down payment on a house or education, things like that.
MARTÍNEZ: All right. So are these accounts automatically set up? Do people have to set them up? How are they going to work?
VANEK SMITH: It sounds like a lot of the details are a little murky. What the White House has said is that parents or guardians are responsible for setting them up and managing them, which, as you can imagine, could put a lot of pressure on parents or guardians who maybe aren't as familiar with financial institutions as some other people might be.
MARTÍNEZ: Yeah. What about taxes? How is that going to work?
VANEK SMITH: Well, a lot of the contributions would be tax-free.
MARTÍNEZ: OK.
VANEK SMITH: I believe for parents or family members, it would be $5,000 a year tax-free. Employers could contribute 2,500. So these accounts could add up, but I think that's also contributing to worries that the accounts could look really different for different children when they turned 18. Obviously, the amount of money in them could vary enormously.
MARTÍNEZ: Is this going to be one of those things where parents are going to have trouble managing them as the years go on, or might it be something that - easy? Maybe they just think about once a year or something like that.
VANEK SMITH: I think that is a really key question because we don't know a lot of things. But certainly, you know, this is going to be managed through private financial institutions, which means there could potentially be administrative fees or things that, you know, you and I probably have dealt with with our own financial institutions and banks. It's something that you kind of have to watch for. It could really put people who maybe are less familiar with these kinds of financial instruments at a pretty big disadvantage, and we don't know how it would be regulated yet.
MARTÍNEZ: Are there any rules for what you can actually invest in?
VANEK SMITH: Well, the money would go into, from what we know, what is called an index fund or some kind of index fund, which is just an investment fund that's pegged to the S&P 500 or the big stock indexes. So I don't think it would go into, like, individual company stocks but more of a kind of market gauge. But it would give people a stake in the market and the incredible wealth that has been created there recently.
MARTÍNEZ: What about the possibility of these accounts maybe affecting the wealth gap between rich and poor families?
VANEK SMITH: That's an interesting question, and I think that is sort of the intention of these plans. President Trump has said that these accounts would give people, quote, "a shot at the American dream" for middle-class kids. I'm not sure how true that is just because depending on how much you are able to contribute into the funds, those accounts will look really different. I mean, by the White House's own calculations, if you made maximum contributions into the plan, by the time you turned 18, you'd have about $300,000. If you were not able to make any contributions into the plan, you'd have less than $6,000 when you turned 18. So I'm not sure that really addresses the wealth gap.
MARTÍNEZ: So, Stacey, I mean, Republicans broadly have had negative reactions to universal basic income programs, you know, guaranteed income programs.
VANEK SMITH: Yeah.
MARTÍNEZ: A lot of them are - call them socialist cash handouts. So, OK, maybe these Trump accounts aren't necessarily the same thing, but are they somewhat in the same ballpark?
VANEK SMITH: I mean, I think cost-wise to the government, these would be pretty substantial. The president has said, for babies born between 2025 and 2029, the U.S. Treasury Department would put a thousand-dollar kind of starter deposit in these funds. That would total around $13 billion. Now, as far as what that would look like, I mean, I think the money would eventually go to people. I don't think it's going to solve some of the immediate problems now people are feeling, especially after SNAP benefits have been cut and other government benefits. It will cost a lot of money. I'm not sure the payoff will be as immediate as maybe voters would want it to be.
MARTÍNEZ: Stacey Vanek Smith is a reporter for Bloomberg's Businessweek and the host of the podcast "Everybody's Business." Stacey, thanks.
VANEK SMITH: Thank you, A.
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