Trump is No Franklin, But…

Years ago, I encouraged 401(k)Specialist.com readers^[i] to: “Let Ben Franklin Create ‘Middle Class Millionaires,’ Eradicate Poverty in America”

Ben, as you may or may not know, made a strategic, hyper long term, micro-finance investment in America’s future, and its future Americans, people he would never know, by investing money in the capital formation, small business endeavors of his day—tradespeople.

My article was hyper critical of proposals to create something called “Baby Bonds” borrowing money, increasing our annual federal budget deficit and national debt—money we don’t have.

I preferred an alternative. I pitched it to some members of Congress. That option would extend the Kay Bailey Hutchinson Spousal IRA to minor children—but only on a Roth basis. I named that long term capital accumulation option the Ben Franklin Child Roth IRA.

All Aboard If You Don’t Want Your Children Left Behind … Holding the Deficit Bag

Hard to believe, but President Trump has managed to outdo proposed Democrat “Baby Bond” deficit spending with his “Trump Accounts,” available Independence Day, 2026. Trump Accounts come with even greater tax preferences and even greater deficit spending.

Sounds like an opportunity to quote Herb Stein’s Law:

“If something cannot go on forever, it will stop.”

No end in sight to today’s $1+ Trillion in annual deficits. That’s a burden we are pushing off onto generations too young to vote and generations yet unborn.

So, if your child, grandchild, or great grandchild is going to end up picking up the tab for the Trump Accounts, you should ensure that they (and every other child you know), takes advantage of eligibility for Trump Account tax preferences, starting in 2026.

Best Deal Out There – Better Than A 401(k) or IRA

What’s the best option for you and your child(ren)? It may be getting your employer to add Trump Accounts to the suite of voluntary employee benefits.

And, if your employer doesn’t offer any benefits, this is one they should consider—as it can be structured to lower employment costs—those you pay and those your employer pays.

On December 2, 2025, the Department of the Treasury and the Internal Revenue Service (“IRS”) issued Notice 2025-68previewing upcoming regulations. Internal Revenue Code 530A (IRC §530A) created Trump Accounts—a new type of individual account for children under age 18.

Employer contributions of up to $2,500 per year are permitted and are not included in the gross income of the employee under new IRC §128. Some employers have already made participation commitments.

Given the ever-increasing cost of health coverage, few employers can increase spending.

However, employer contributions are also possible via pre-tax deferrals through a cafeteria plan, IRC §125. The coming IRS guidance will confirm how such contributions can avoid creating a plan subject to ERISA—perhaps similar to pre-tax, IRC §125 contributions to a Health Savings Account.

Pre-tax contributions via a cafeteria plan will generally lower employment costs by reducing FICA and FICA-Med taxes paid by you and your employer. To enable these tax preferred savings, your employer will need to modify payroll processing and create a separate written IRC §128 plan (perhaps similar to the written plan requirements for Educational Assistance Plans, IRC §127(b)(1)).

For children who are U.S. citizens, who are born in calendar years 2025-2028, the child is eligible to receive a general contribution of $1,000 from federal taxpayers per IRC §6434.

Finally, after-tax contributions can come from parents, grandparents, other relatives, charities, governments, unrelated individuals, and even the children themselves—up to an annual total contribution from all sources of $5,000. After tax contributions create basis.

Contributions from other sources are not income to the employee or the child when made, but do not create basis—so they will be taxable when received. Those other sources include employers (as described above), the federal seed contribution for those born after December 31, 2024 and before January 1, 2029, contributions by states and subdivisions and contributions by non-profit entities.

The $2,500 and $5,000 limits will be indexed for inflation after 2027.

To open the Trump Account, an authorized individual must make an election on a forthcoming IRS form to establish a Trump Account with Treasury for the benefit of an eligible individual. More details are/will be available at: trumpaccounts.gov

What’s the Opportunity?

I’ve always thought of this form of hyper, long-term investing three ways:

1. First, it is an opportunity to leverage compound interest to create “middle class millionaires … someday.” Upon the birth of each of my two children, in 1984 and 1987, I opened Uniform Gifts to Minors Act accounts, with a gift of $1,000—naming them Ben Franklin Accounts. My goal was to make each a “middle class millionaire … someday.” I noted that from the end of World War II to 1984, the average annual rate of return for the S&P 500 was over 11%. So, $1,000 was added to a tax deferred annuity invested 100% in equities. At 12%, tax deferred, money doubles every 6 years (Rule of 72). So, if history repeats itself, and if sequence of returns risk doesn’t rear its ugly head, each of my children will be a “middle class millionaire” upon reaching age 60. So far, so good—both are still on track (see graphic below, a slide from my May presentation, Ben Franklin’s Last Bet, World at Work, Total Rewards 2025). Over the years, I’ve “converted” those monies to a Roth IRA, so that, if successful, the $1MM will be tax free. What will $1MM buy in 2044 and 2047? I have no idea.

2. Second, even though I won’t be around to see how or whether this “bet” achieves the intended goal, should either of my children someday have children of their own, I can only hope that they will create a family legacy for generations to come … taking advantage of the new Trump Accounts. And, if they don’t have children themselves, hopefully they will help fund accounts for others. Why? Simple. If we keep running annual federal deficits like the $1-$2 Trillion we are spending today, those kids will need it.

3. Third, don’t repeat Ben’s mistakes, especially:

• Don’t entrust the money to some government entity, and more importantly,
• Don’t wait until death … make these and other investments today, both financial and, a la Ben Franklin, investments in knowledge and skill development.

Let’s go!

I always appreciate your comments, concerns, criticisms, or questions. Connect with me on Linked-in or contact me at: jacktowarnicky@gmail.com

Disclaimer No. 1: My comments are my own based on my past experiences in plan sponsor and consulting roles and do not necessarily reflect those of any employer or association I have been employed by or affiliated with, past, present, or future.

Disclaimer No. 2: Information was provided by individuals with knowledge and experience in the industry and not as legal or tax advice. The issues presented here may have tax and legal implications, and you should discuss this matter with tax and legal counsel prior to choosing a course of action. This article is intended to be informational only. It is not and you/others should not use it as a substitute for legal, accounting, actuarial, tax or other professional advice. Any advice contained in this article was not intended or written to be used and cannot be used by anyone for the purpose of avoiding any Internal Revenue Code penalties that may be imposed on such person [or to promote, market or recommend any transaction or subject addressed herein. You (others) should seek advice based on your (their) particular circumstances from an independent tax advisor.

SEE ALSO:

• Trump Accounts Website Goes Live as Ray Dalio Pledges Contribution

---

^[i] https://401kspecialistmag.com/let-ben-franklin-create-middle-class-millionaires-eradicate-poverty-in-america/