Robinhood Is Being Considered For the New Federal "Trump Accounts." Here Is What Investors Need to Know.

The popular online retail brokerage Robinhood (NASDAQ: HOOD) is being considered to manage a program implemented by President Donald Trump that will award $1,000 to children born between 2025 and 2028 to help jump-start their life savings.

The report came from Bloomberg News, which also said the U.S. Treasury Department expects to make an announcement soon, and that as many as three companies could be selected as trustees for the program. Here is what investors need to know.

Official White House photo by Joyce N. Boghosian.

What are "Trump Accounts?"

With the cost of living sky high for most and people struggling to adequately save for retirement, the "Trump Accounts" are a way for newborns and younger Americans to get ahead with their savings. Every U.S. child with a Social Security number born between Jan. 1, 2025, and Dec. 31, 2028, will be eligible to receive $1,000 from the government.

Anyone under 18 will be eligible for the tax-advantaged "Trump Accounts," though the $1,000 award will be available only to newly born children. Parents will be custodians of the accounts until the children turn 18.

Annual contributions are not required, although parents can contribute up to $5,000 per year, and employers can also contribute up to $2,500 per year. Funds in the account must be invested in mutual funds or exchange-traded funds that track the broader benchmark S&P 500 Index or another index of mostly U.S. equities.

Contributions will generally be made with after-tax dollars, although some contributions from employers, charities, or the government can be made with pre-tax dollars.

The purpose of these accounts is to use the power of time and compounding to help children get ahead. According to the Trumpaccounts.gov, by contributing $250 per year to the initial $1,000, and assuming historical returns to the S&P 500, that account could grow to $51,000 by the time a child turns 27.

Obviously, past performance does not guarantee future success, and the market has been highly volatile in recent years, but conventional investment advice suggests that the longer one keeps their funds invested, the less likely they are to lose money.

Why it could be good business for Robinhood

For Robinhood, or any investment brokerage, being selected as a trustee could be very rewarding from a business perspective. Brokerages typically make money by facilitating trades in some way, or by taking cash deposits and investing those funds in short-term assets or lending them out, such as through a margin loan.

According to the Centers for Disease Control and Prevention, there were nearly 3.6 million births in the U.S. in 2023. If all of those children were to receive $1,000, that's a total of $3.6 billion in new assets under management (AUM). If the Treasury Department does choose three trustees, that would be $1.2 billion in new AUM for each.

But remember, that's just one year of new AUM; that money would need to stay invested for 18 years, and would likely accrue significantly during this time. The "Trump Accounts" could become a lucrative business for whoever is selected as a program trustee.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.