Trump accounts grow tenfold to nearly 70 million children through auto-enrollment

In a 401(k), auto-enrollment moves money: contributions start without the worker having to act. For Trump accounts, only the account is automatic ^[4]. A parent has to claim it before anyone can manage it or make a qualifying contribution ^[3]. More than six in seven of the nearly 70 million accounts exist because a child under 18 had a valid Social Security number ^[17]. American Banker's report does not include how many have been claimed or how much money they hold.

"Automatic enrolling gets more people invested earlier, and when you're talking about children, that potentially creates decades of additional compounding," said AJ Kletkin, a private wealth advisor at Private Advisor Group ^[13]. Adam Bergman, founder of IRA Financial, made a smaller claim. "For people that are just not into this stuff or don't even know about it, at least ... the kids will have an account automatically enrolled," he said ^[14].

The headcount fits more than one outcome. Parents of the auto-enrolled cohort may claim and fund accounts at something like the rate of the 7 million children whose families opted in on their own ^[1]. Most of the new accounts may instead sit unclaimed, leaving the money with the original cohort. Outside donors may also fund accounts that parents never touch. I think the second outcome is the likeliest in the near term. The auto-enrolled children were enrolled because no one in the household had acted, and they outnumber the opt-ins by more than eight and a half to one ^[18]. The view is wrong if claimed accounts among the auto-enrolled reach the tens of millions.

The stock proposal is the more interesting deal term. A donor holding appreciated shares could give them to a pool of 5,000 or more children drawn from one qualifying state or geographic region ^[6] and skip the capital gains tax a sale would trigger ^[15]. The donor does not sell, and does not hand over cash that would go into the low-cost index funds that are the accounts' current investment options ^[9]. The children generally have to keep the donated stock for at least five years ^[8]. "That's kind of unique that you don't have the ability to diversify that," said Brian Boswell, co-founder of The Retirement Studio ^[10].

Boswell speculated that the hold is meant to stop thousands of recipients from selling the same shares at once. "Maybe if everybody sold it on the same day ... it could adversely impact the stock," he said, adding that the same thing could still happen once the five years are up ^[11]. For a company giving away its own shares, the hold moves that selling risk five years out ^[8][11].

The donor pool looks small. Bergman put the maximum at hundreds of Americans ^[19]. "What on earth. These accounts got very weird very quickly," wrote Christine Benz, director of personal finance and retirement planning for Morningstar ^[12]. Joseph Medina, a partner in EY Private, said his understanding is that Treasury will keep "one big omnibus account" ^[20]. Comments on the proposal are open through Nov. 30 ^[7].