Starting this July, a new federal savings option — called Trump Accounts — will begin accepting deposits for children, including an initial government contribution for many newborns. The rollout arrives as families already have several tax-advantaged choices, most notably 529 plans, and financial advisers say parents should weigh the trade-offs before switching or adding accounts.
Only a minority of parents currently use 529 college-savings plans, according to a recent Edward Jones report, leaving a sizable share of families without a dedicated education vehicle. “Education tops the list of long-term goals for many households, but it rarely becomes the immediate financial priority,” said Andy Esser, a certified financial planner at Edward Jones, advising that 529s remain a strong fallback because of their tax perks.
How 529 plans still stack up
Savings inside a 529 grow without federal tax on investment gains, and withdrawals for approved education costs are also tax-free; many states add their own tax breaks for contributions. Investments are typically offered through age-based portfolios that shift from aggressive to conservative as a child gets older.
Last year’s broad tax legislation expanded what families can pay with 529 funds. Beyond two- and four-year colleges and graduate school, plan distributions may now cover vocational programs, credentialing courses and apprenticeships.
Families can also use up to $20,000 per year from a 529 for K–12 tuition and related services, including tutoring, test preparation and educational therapy. Unused balances offer flexibility: funds can repay student loans or, subject to limits, be rolled into a Roth IRA tax-free — up to $35,000 — under the current rules.
- Tax treatment: Federal tax-free growth and tax-free withdrawals for qualified education expenses; potential state tax deductions or credits.
- Eligible expenses: College, graduate school, trade and apprenticeship programs, plus expanded K–12 costs (up to $20,000/year).
- Stretch options: Student loan repayment and limited rollovers to Roth IRAs (up to $35,000).
- Non-education uses: Funds can be reallocated to another beneficiary or withdrawn with taxes and penalties on earnings.
“The scope of 529s has broadened steadily,” said Thomas Psaltis, who leads education savings at Bank of America and Merrill. “For many families, they remain one of the most efficient tax-advantaged vehicles to prepare for rising education costs.”
Lawmakers have also proposed further changes. A bipartisan bill introduced this year — the First-Time Homebuyer Empowerment Act — would allow accountholders to tap unused 529 savings for a down payment on a first home. The measure, sponsored by Representatives Tom Barrett (R-Mich.), Tracey Mann (R-Kan.), Mark Alford (R-Mo.) and Lou Correa (D-Calif.), is under review by the House Ways and Means Committee.
What Trump Accounts offer — and limit
The new accounts, officially referenced as 530A accounts by the administration, are designed in part to reduce wealth gaps in college savings. To encourage broad participation, the Treasury will seed accounts for eligible newborns with a $1,000 initial deposit for children born between 2025 and 2028.
For younger children born before Jan. 1, 2025 who otherwise wouldn’t qualify for the Treasury deposit, philanthropists have stepped in. Tech philanthropists Michael and Susan Dell pledged $6.25 billion to place $250 into accounts for children in ZIP codes where median household income is $150,000 or less. Other state-focused donors and a number of employers have announced matching commitments tied to the federal seed deposit.
But the structure of Trump Accounts is narrower than most 529s. According to IRS guidance, account funds will be invested exclusively in U.S. stock funds — there are no bond allocations to dampen market swings — and withdrawals before age 18 are largely restricted except in narrowly defined circumstances. Once accountholders reach adulthood, the accounts follow standard IRA distribution rules: withdrawals before age 59½ typically face income taxes plus a 10% penalty, with limited exceptions for certain life events such as higher-education expenses or qualifying first-home purchases.
Some financial professionals warn that the accounts may not be the most favorable vehicle solely on tax grounds. Still, many advisers recommend families open a Trump Account where eligible, noting the practical value of the upfront deposits and employer or philanthropic matches.
The participation gap is significant: higher-income households currently dominate 529 ownership. Policy designers say the seed deposits and third-party matches aim to bring more low- and moderate-income families into formal savings, but the investment restrictions and withdrawal limits could make Trump Accounts a supplemental — rather than replacement — option for families already using 529s.
- Who’s eligible: Treasury seed applies to children born 2025–2028; older children in qualifying ZIP codes may receive philanthropic seed funds.
- Seed amounts: $1,000 federal deposit for 2025–2028 births; $250 from the Dell pledge for certain earlier births.
- Investment rules: U.S. stock-only portfolios, no bond funds.
- Withdrawal limits: Restricted before age 18; later distributions treated like traditional IRA withdrawals, with standard early-withdrawal penalties.
Bottom line: families weighing their options should compare the new accounts’ upfront incentives and investment limits with the longer-established flexibility of 529 plans. Many advisers suggest claiming any free seed money while keeping a traditional 529 or other savings vehicle in play to preserve diversification and withdrawal flexibility as needs change.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.