- Trump accounts offer a new federally backed savings option for children under 8, including a proposed $1,000 bonus for children born from 2025 through 2028.
- 529 plans continue to offer unparalleled tax advantages for education, with tax-free growth and tax-free withdrawals for qualified expenses.
- Families considering both options may find Trump accounts useful for free money, while 529 plans remain the more efficient option for education planning.
Trump’s accounts represent a major shift in how the federal government encourages families to save for their children’s futures. Parents or guardians can open the account for a child, and ownership rests with the child. The program gives a $1,000 federal deposit to children born between 2025 and 2028, making it one of the largest automatic savings incentives ever aimed at young children.
Families can contribute up to $5,000 annually, with the limit adjusted for inflation. The funds will be invested in broad U.S. index funds, a structure intended to encourage long-term market growth while avoiding high-fee or speculative investments. Access is restricted: Children cannot withdraw any funds before the age of 18, which can be a problem when using them for education.
Unlike plans for education, Trump accounts allow the funds to be used for a wide range of purposes, including higher education, job training, a first home, or capital for a small business. Favorable tax treatment (capital gains tax rates) only applies when the account is used for these qualifying purposes. Non-qualifying uses face ordinary income tax plus a penalty on profits.
Because Trump’s calculations are considered… Student assetsthey carry more weight in college financial aid calculations than parents’ assets.
529 plans are still the best option for providing education
While Trump accounts expand the list of savings tools, the 529 plan remains the gold standard for saving for college. Its core strengths remain unchanged: investment earnings grow tax-free, and withdrawals are tax-free when used for qualified education costs. This includes tuition, fees, books, supplies, and some living expenses for higher education, along with K-12 expenses up to an annual maximum.
529 contribution limits are much more flexible than in Trump’s accounts. Many families also benefit from state-level incentives like tax cuts, which Trump’s accounts do not offer.
Investment menus tend to be broader, including mutual funds, ETFs, and age-based portfolios that automatically adjust risk as college approaches. Withdrawals can be made at any time, as long as they match eligible education expenses.
Importantly, when a parent owns a 529 plan, the balance counts as a parental asset for the FAFSA, meaning it reduces financial aid eligibility much less than a student-owned account.
Comparison: Trump Accounts vs. 529 Plans
Parent or guardian of a child under 18 years of age | ||
Owned by the account owner (usually a parent or grandparent) | ||
Annual contribution limit | $5,000 (will be indexed for future inflation) | There is no set limit, but it is subject to gift tax rules |
Low-cost US index funds | Plan-specific index funds | |
Higher education, training, first home, small business or farm | Varies by state, including higher education, K-12 tuition, and limited student loan repayment | |
Tax treatment (eligible) | Profits are taxable under capital gains rules | Profits grow tax-free and withdrawals are tax-free |
Tax treatment (not eligible) | Ordinary income tax + penalty on profits | Ordinary income tax + 10% penalty on profits (+ possible state tax) |
They are counted as the student’s assets | It depends on ownership, and is usually counted as an asset | |
A $1,000 seed fund for children born between 2025-2028 | Some states offer seed money |
What this means for families planning to teach
Families trying to choose between the two should start by evaluating their primary goal. If education costs are the main goal, tax-free withdrawals make 529 plans exceptionally effective. Over a decade or more of compounding, the ability to avoid taxes can create a measurable difference in the savings accumulated.
In contrast, Trump’s calculations may attract families seeking more flexibility beyond education. Federal seed money makes it attractive to newborns. But restrictions on withdrawals before age 18 make it less practical for families who need money during the K-12 years or at the beginning of a child’s college career.
Tax treatment is also important. Because Trump accounts are not designed solely as educational tools, their tax benefits depend on specific qualifying uses. A 529 plan provides clear and consistent tax benefits for any qualified educational expenses.
Financial aid rules may also affect some families. Trump’s account, which is treated as a student asset, could further reduce eligibility. A 529 plan, owned by a parent, has a softer effect. You can learn more in our complete FAFSA guide.
Should you use both accounts?
Yes, you can use both. Especially if you get free money!
Many families may choose to use both tools for different purposes. A child who qualifies for federal seed money may benefit from opening a Trump account, allowing the money to grow for decades. Meanwhile, parents can keep the 529 plan as their primary means of covering educational expenses.
This division strategy allows families to take advantage of each program’s strengths: 529 education tax benefits and Trump’s seed money.
Key takeaways
Saving for education and long-term accomplishments often requires multiple tools. Trump’s calculations bring a new federal stimulus to the table, while the 529 plan remains the most effective option for college and other education costs.
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