Are the New Trump Accounts a Better Alternative for College Savings?
- Bob Brooks
- 16 hours ago
- 3 min read
There are a lot of details in the Big beautiful Bill that leave me scratching my head. Let’s set aside the questionable branding of “Big” and “Beautiful” and dig into the details of this new bill– because while it sounds appealing, the fine print may tell a more nuanced story.
What are Trump accounts?
The whole idea is to encourage early savings and investing for kids – helping them save for college or maybe even a home. Each child born between 2025 and 2028 would receive a $1,000 government-funded seed deposit to help kick-start their account.
Please keep in mind I am giving you general guidelines and rules. I am sure, like credit cards, there is strict fine print.
Annual Contribution Limit: You can contribute up to $5,000 of post-tax money per year.
Employer Match: Employers can contribute up to $2,500 annually (of the $5,000 max) to your child’s account (a somewhat unusual detail).
Investment Options: The funds must be invested into a broad-based fund that tracks a U.S. stock index. So, if you prefer conservative or more diversified investments, you may be limited.
So, is it better than a 529 plan? Let’s do a comparison:
Tax Treatment
In the Trump account, account holders can start taking out the money once they turn 18. The money grows tax deferred until then. Once you take out the money for a qualified expenditure – such as college tuition, first-time home purchase, etc. (see fine print – we are just focusing on college) you will owe long-term capital gain taxes. If you use the money for any other non-qualifying expense, the IRS treats the money as ordinary income, forcing you to pay individual income taxes PLUS an additional 10% penalty. The 10% penalty applies to those who are under 59 ½.
With the 529 plan, the withdrawals are tax-free when used for education. What makes the 529 different from Trump accounts is that qualified education expenses are NOT taxed. With the 529, you can also:
Change the beneficiary to another child or family member
Rollover any unused funds into a Roth IRA
Use up to $10,000 to pay off student loans
There’s more. Do I need to keep going on?
Investment Options
Based on my research, Trump accounts are limited to a broad-based stock index fund. No customization or risk-adjusted investment choices. Meanwhile, 529 plans are loaded with a much wider range of investment options, allowing children to have a portfolio catered to their needs as their age, risk, and goals change.
Account Ownership
One of the biggest differences between the two accounts is who owns the account. With a Trump account, ownership belongs to the child. Keep in mind earlier when I stated account holders can start taking money out once they turn 18. Once the child turns 18, they control the money – regardless of your intentions. The adult loses all say once the child comes of age.
With a 529 plan, the parent (or other adult who opened the account) retains ownership and control, even after the child turns 18. The adult decides how the money is used, when it it’s withdrawn, and who the beneficiary is.
This may seem like a small detail, but differences in account ownership is important. It is not about micromanaging your child’s finances – it's about staying flexible. Financial needs and goals tend to change; your child may earn scholarships, choose not to attend college, etc. It is a big advantage in the 529 plan that the account owner can adapt the funds to fit those evolving goals, rather than being locked into a single outcome.
Bottom Line
If you’re eligible for the free $1,000 Trump Account seed money, take it. Invest it and let it grow. But when it comes to ongoing college savings, the 529 plan is clearly superior to a Trump Account based on the details that have been released.
And for any future child born after 2028 – well, sorry little Jimmy, you’re straight out of luck.
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