The newly minted “Trump accounts” from the recent tax and spending megabill have generated a significant amount of interest among parents looking for the most effective college savings options for their children. After all, planning for educational opportunities that may not arise for years can be overwhelming.
Trump accounts have also created challenges for advisors attempting to advise parents looking for maximum value with their allocation options for education savings. Because Trump accounts formally become available starting in 2026, it’s important that advisors understand the rules governing them and are well-versed in advising on how they measure up to two traditional savings vehicles: 529 plans and Roth individual retirement accounts.
While there’s no reason that a parent couldn’t fund both a Trump account and more traditional savings vehicles, most families are working with limited funds. For many, a Trump account may be better seen as a supplement to more traditional savings options given their limitations as currently designed.
Trump Accounts: The Basics
Trump accounts can be established for any child who is younger than 18 in the year the account is established, who has a Social Security number and for whom an election is made on their behalf (typically, by the child’s parent, although any private individual can establish an account on the child’s behalf). The U.S. Treasury has yet to establish a formal procedure to establish a Trump account on the child’s behalf, as contributions are not permitted before July 4.
At the parent’s election, the federal government is set to provide a $1,000 contribution for beneficiaries born after 2024 and before 2029. Individuals can contribute up to $5,000 annually on an after-tax basis (the $1,000 “seed” funding does not count toward the $5,000 limit).
Trump accounts were thought to be geared toward offering a tax-advantaged savings option for education, a first home or even to allow a young adult to start a business. Amounts cannot be withdrawn before the child turns 18.
Once the child turns 18, the account is treated like a traditional IRA. The beneficiary will be subject to a 10% early withdrawal penalty if the funds are tapped before age 59.5. Typical exceptions to the early withdrawal penalty, such as education expenses or first-time home purchases, will allow penalty-free access.
Trump Accounts vs. 529s and Roth IRAs
All three tax-preferred savings vehicles impose limitations on the amounts that can be contributed. While Trump accounts limit annual contributions to $5,000, 529 plans are governed by state law. At the federal level, contributions are treated as gifts so are limited by the gift tax annual exclusion, which is $19,000 in 2025. Parents can also front-load 529 plans by contributing up to five years’ worth of the annual exclusion amount in a single year. That figure is up to $190,000 for a married couple that elects gift-splitting in 2025.
Roth contributions are limited to the lesser of the account owner’s compensation for the year, or $7,000 in 2025. Trump accounts are limited to a $5,000 cap but do not require that the child have earned income for the year.
In addition, all three account types are funded with after-tax dollars. Because Trump accounts are treated as traditional IRAs, withdrawals are subject to the taxpayer’s ordinary income tax rate. Assets in 529 plans are withdrawn tax-free when used for qualified education expenses. After five years, Roth IRA funds can be withdrawn on a tax-free basis; earnings on the contributions themselves are also withdrawn tax-free.
Trump accounts offer no upfront tax benefit and are also taxable upon withdrawal, while 529 plan funds and Roth funds can be accessed tax-free assuming that the otherwise-applicable requirements are satisfied with respect to each type of account.
Presumably, Trump accounts will be subject to the required minimum distribution rules once the child reaches age 75. Up to $35,000 in unused 529 plan funds can be rolled over into a Roth IRA.
Trump accounts are more limited in investment options than either a 529 plan or Roth IRA. Trump account funds must be invested in low-cost mutual funds or certain exchange-traded funds that track the returns of qualified indexes composed primarily of U.S. companies that trade regulated futures contracts on a qualified exchange.
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