Trump Accounts vs. 529 Plans: What Parents Need to Know
Families with young children will soon have access to a new savings vehicle known as a Trump account. Beginning in mid-2026, children born between 2025 and 2028 will receive a $1,000 government-funded contribution. This contribution is not taxable income to the child and is treated as a government-funded gift to the account.
Parents, grandparents, friends, and others may also contribute. Total annual contributions from private sources are limited to $5,000 per child. These contributions are made with after-tax dollars and are not deductible for the contributor.
Employers may contribute up to $2,500 per employee each year. If an employee has multiple children, that amount must be divided among them. Contributions from employers are not treated as taxable income to the employee or child. Charitable organizations and private foundations may also contribute through grants, which likewise are not treated as income to the account holder.
Contributions can generally be made until the child reaches age 18. While only children born between 2025 and 2028 qualify for the initial $1,000 government contribution, other eligible children may still receive private contributions even if they were born outside that window.
Once the child reaches age 18, the account does not technically become an IRA, but it generally follows IRA tax rules. The account holder may choose to roll the balance into a traditional IRA or leave the assets in the Trump account.
Distributions taken before age 59½ are generally taxable on the earnings portion of the withdrawal. A 10% early-withdrawal penalty may also apply unless an exception exists. Qualified education expenses are one example of an exception that can eliminate the penalty, although taxes may still be owed on the taxable portion of the distribution.
After age 59½, withdrawals generally receive tax treatment similar to that of a traditional IRA. The account will also be subject to required minimum distributions, which are currently scheduled to begin at age 75.
Roth conversions may be worth considering, but timing matters. If a conversion occurs while the child is still subject to the kiddie tax rules, some of the taxable income generated by the conversion could be taxed at the parents' tax rate. Waiting until the child is no longer subject to the kiddie tax may produce a better outcome.
Unlike a 529 plan, a Trump account cannot be transferred to another beneficiary. The account remains tied to the individual owner, much like an IRA.
Why 529 Plans Still Have the Edge for Education
For families saving specifically for education, 529 plans retain several important advantages.
Withdrawals used for qualified education expenses are generally free from federal income tax and penalties. In addition, many states offer a tax deduction or tax credit for contributions, providing an extra benefit that Trump accounts currently do not offer.
529 plans are also more flexible when educational plans change. Account owners can change beneficiaries to another qualifying family member, and eligible balances may be rolled to a Roth IRA subject to IRS requirements and limits. Assets can continue growing tax-free until they are needed for qualified education expenses.
Which Account Is Better?
The answer depends on the goal.
If the primary objective is funding college or other qualified education expenses, a 529 plan is generally the stronger choice because of its tax-free qualified withdrawals and beneficiary flexibility.
If the goal is to jump-start retirement savings for a child and take advantage of the government's $1,000 seed contribution, a Trump account may be worth considering. However, it should be viewed primarily as a retirement-focused account rather than an education savings vehicle.