Instead, the money must go into low-cost mutual funds or exchange-traded funds that follow broad U.S. equity indexes. That design spreads each account across many publicly traded companies instead of allowing a parent, broker, government official, or political figure to pick a small group of winners and losers.
The rules also limit fees. Public guidance says eligible funds may charge no more than 0.10 percent in annual fees.
What Are The Risks For Families?
The main risk is market loss. A broad index fund can reduce the damage caused by one company’s collapse, but it cannot shield an account from a stock-market downturn. If the broader market drops 20 percent, 30 percent, or more, Trump Account balances can fall too.
Index funds also do not guarantee that the underlying companies are safe, scandal-free, politically neutral, or financially stable. A company can face lawsuits, layoffs, regulatory investigations, or reputational damage and still remain in a major index if it meets the index’s rules.
Families may also have few options for lowering risk as the account holder nears adulthood. Current guidance points to equity index funds during the growth period and does not clearly identify a cash, bond, money-market, or target-date option that would let families move money into safer holdings before the beneficiary turns 18.