Your child may be automatically enrolled in a Trump account. Here’s what you need to know

NEW YORK (AP) — Whether you realize it or not, your child may be registered with a “Trump account.”

Launched earlier this year, the Trump Accounts program allows parents to apply for special investment accounts for children 18 or younger. And some babies can receive a one-time contribution of $1,000 from the government.

Now, because of the automatic enrollment highlighted Wednesday by President Donald Trump, the Treasury Department says every eligible child with a valid Social Security number has a Trump account. But parents and legal guardians will still need to formally activate accounts if they haven’t already done so.

WATCH: Trump announces that eligible American children are automatically enrolled in Trump accounts

Here’s what we know.

How Trump Accounts Work

Accounts are a savings tool that allows money to be invested in the stock market in a child’s name. The child can only access the money when they turn 18 and can only use it for specific purposes, such as paying college tuition, starting a business, or making a down payment on a house. Families can activate an account through the program’s trumpaccounts.gov website or its mobile phone app.

WATCH: How “Trump Accounts” for Kids Work and Who Will Benefit Most

The government will contribute $1,000 for some babies once the account is claimed. To qualify for the initial $1,000, a baby must be a U.S. citizen, have a Social Security number and be born between January 1, 2025 and December 31, 2028, which covers Trump’s current term in office.

Any parent, regardless of immigration status, can open an account for an eligible child. Parents of older children are also encouraged to open accounts. Although they are not eligible for the government’s $1,000 contribution, some older children are eligible for up to $250 in seed capital from separate investments from wealthy donors.

Watch the PBS News Hour segment in the player above.

Otherwise, family contributions will have to be paid out of pocket. Parents can contribute up to $2,500 per year in pre-tax income, much like retirement accounts. Employers, parents, friends, local governments and philanthropic groups can also participate. Annual contributions are capped at $5,000, although contributions from governments and charities are not counted in this total.

Private banks and brokerages will manage the money. When the accounts were originally designed, investments were limited to broader index funds. But with updated rules from the Treasury Department late last month, eligible wealthy investors can now also donate shares of individual companies.

Automatic registrations — but no account activation

With automatic enrollment, Trump said 70 million children would now have accounts, up from 8 million created since they launched in July.

Researchers at the Center for Social Development at the Brown School at Washington University in St. Louis have argued for automatic enrollment. And Jin Huang, co-director of the center, called the administration’s decision “a big step.”

LEARN MORE: What experts want you to know about Trump accounts and a massive new donation

“Automatic enrollment is the most important feature of the policy design of early wealth building programs, to ensure the full inclusion of all eligible children,” Huang said, citing his team’s research.

Yet, he said, there is still work to be done. Parents and legal guardians must formally claim their accounts to activate them — and choose the $1,000 starting capital if they’re eligible — and Huang says “each of these steps will reduce participation,” with particular hurdles facing low-income families who may not already have access to similar investments.

Wealthy Investors Can Now Donate Individual Stocks

When Trump accounts were first launched, investments were initially limited to broad index funds – in theory to reduce risk while generating additional growth. But among additional updates to the program, eligible wealthy investors can now also donate shares of individual companies.

WATCH: Trump Officially Launches Trump Accounts for Kids, Ringing Wall Street’s Opening Bell

“It’s a way to encourage participation in the program,” said Nathan C. Goldman, an accounting professor at North Carolina State University. He said many of the world’s richest people don’t have “a lot of cash” and could turn to stocks instead.

Yet, he notes, individual stocks are more volatile than indexes. And families would have no say in which companies could donate to their children’s wallets.

Once a child turns 18, they can access the money

It is important to note that the child will not be able to access the money until the age of 18, except in rare circumstances. So money cannot help meet immediate expenses.

But once a beneficiary of a Trump account turns 18, they can choose to use the money they take out as they see fit. Trump account beneficiaries can also choose to roll the investment into a Roth IRA account.

“You’re extending the life of this thing beyond the 18 years; you’re going all the way to the child’s potential retirement,” said Myranda Fabian, a certified financial planner at Plante Moran Financial Advisors.

Transferring income from a Trump account to a Roth IRA will be subject to tax. Roth IRA accounts allow earnings to grow and be withdrawn tax-free when an adult reaches retirement age.

Comparing Trump Accounts to 529s and Brokerages

529 accounts are intended to invest in qualified education expenses, such as tuition, trade schools, and student loans, among other expenses. They grow tax-free, while investment earnings from Trump accounts will be taxed when withdrawn, and 529 account funds can be transferred to eligible family members.

Yet they are specifically limited to education spending. In contrast, there are more options for parking money in Trump accounts after a child turns 18.

LEARN MORE: What Experts Think About $1,000 ‘Trump Accounts’ for Babies

Custodial brokerage accounts, on the other hand, are taxable investments with no contribution or withdrawal limits, unlike Trump accounts. But as with the Trump accounts, beneficiaries of custodial brokerage accounts have full control of the account once the child turns 18, and there are no rules on how they can spend the money.

Choosing an investment account that’s best suited for a child’s future depends on each parent’s goals, said Kate Ashford, wealth management editor at NerdWallet.

“The account you use to save will really depend on what you’re saving money for,” Ashford said.

If parents are looking to focus on financing their children’s education, she added, 529 accounts remain the most beneficial.

Lingering concerns about inequity

Supporters of the Trump accounts say they want to put more people on the stock market and give even children born into poverty a chance to benefit.

But critics say those accounts also fail to offset cuts the Trump administration and congressional Republicans have made to other programs that benefit young people and the adults in their lives, including food assistance and Medicaid. And even with government contributions, some warn that the Trump accounts could widen the wealth gap.

Goldman views Trump accounts as a diversification tool — and notes that ultimately, they’re another option families can consider when investing for their children, with solid tax benefits.

Watch the PBS News Hour segment in the player above.

Still, wealthy families will be more likely to be able to afford all of the additional direct investments, Goldman said. For example, a total contribution of $5,000 per year would equate to $90,000 for a child over 18 – and even with start-up capital for some children or options to make smaller investments, inequalities remain.

“It’s designed — especially with that $1,000 seed money — to be ‘one account for everyone,'” Goldman said. “But only certain people will be able to benefit from it. Only certain people will have this ability to do it.”

AP writer Moriah Balingit contributed. Grantham-Philips reported from Chicago.