Earlier this year, the One Big Beautiful Bill Act (OBBB) was signed into law, reshaping the landscape of college financing. By expanding the eligible uses of 529 plans and eliminating several forms of federal student loans and income-driven repayment plans, the bill sent a clear message that families are expected to save more to cover the cost of education.
As families grapple with this new reality, many will find themselves gravitating towards an exciting addition under the OBBB: Trump Accounts. These new savings vehicles, with their headline-grabbing promise of $1,000 in seed funding for eligible children, are designed to provide the next generation an early foothold in the US stock market. They also aim to give children a head start on saving for life’s major expenses, including college, a first home, and retirement.
Before families move forward with Trump Accounts, it’s worth asking two basic questions:
- Are Trump Accounts worth their investment dollars?
- Are they better than a 529 plan for college?
Although Trump Accounts were originally conceived as a college savings tool, their final form differs sharply from their 529 counterpart. Understanding how Trump Accounts work, their limitations, and how they compare to 529s is essential for anyone trying to maximize the tools available to fund a child’s college education.
What Are Trump Accounts
Trump Accounts, or 530As, are new child-focused, tax-advantaged investment accounts available to any US citizen under the age of 18 with a Social Security number. Early drafts envisioned a flexible education savings tool, but the published version more closely resembles a “baby IRA,” with eligible children receiving a one-time seed contribution through one of two pilot programs.
- Every baby born between January 1, 2025, and December 31, 2028, is eligible for a one-time $1,000 seed-funding contribution from the federal government
- Following a $6.25 billion donation from Michael and Susan Dell, a second incentive offers $250 in seed funding for children born before January 1, 2025, but under the age of 10, if they live in a zip code with a median income below $150,0001
It is important to note that families will need to proactively open a Trump Account for their child to receive the match. Currently, there is no automatic enrollment even if the child meets either of the above criterion to qualify for the incentive.2
How Do They Work
Starting July 4, 2026, families will be able to contribute up to $5,000 each year per child to a Trump Account. Employers may contribute up to $2,500 each year, which may be pre-tax and excluded from the employee’s taxable income, but all contributions count toward the $5,000 annual limit.
Like a 529 plan, beneficiaries do not need earned income to receive contributions, and contributions can be made by almost anyone.
Funds must be invested in a limited lineup of low-fee mutual funds or ETFs tracking large US equity indexes.3 Any after-tax contributions will grow tax-free, similar to a Roth IRA or 529 plan, while pre-tax contributions will be taxed at the beneficiary’s ordinary income tax rate when withdrawn.4
With few exceptions, money cannot be withdrawn from a Trump Account until January 1 of the calendar year in which the beneficiary turns 18. After that point, Trump Accounts follow rules similar to traditional IRAs: only funds used for qualifying exceptions, like higher education, can be withdrawn before age 59 ½ without incurring a 10% early-withdrawal penalty.5
How Trump Accounts Compare to 529s
While Trump Accounts absorbed several features of 529 accounts — including tax-free growth on after-tax contributions and the ability to use funds for qualified higher education expenses — 529s remain the premier education savings vehicle thanks to their versatility and ease of use.
Taxation
Unlike Trump Accounts, 529s only accept after-tax contributions. This simplicity allows for both tax-free growth and tax-free withdrawals when used for qualified education expenses. Trump Accounts, by contrast, accept both pre-tax and after-tax dollars. For students planning to use these accounts to pay for college, any pre-tax funds — including the government’s $1,000 seed deposit — reduces the account’s real value at the time of distribution. Current IRS guidance requires pro-rata withdrawals, meaning every distribution must include a blend of taxable and nontaxable funds in proportion to what the account holds. As a result, a single pre-tax contribution — including either of the incentives — means education withdrawals are subject to income tax.6
Flexibility
529 plans offer significantly more investment choice — including age-based portfolios that automatically shift from stocks to a more conservative mix of investments as a child nears college — plus a range of static portfolios designed for different investment strategies.7
For families with a greater preservation mindset, prepaid tuition options like Private College 529 Plan use contributions to purchase a percentage of annual tuition and fees at today’s rates at every school in their network. The percentage is guaranteed by each participating institution, regardless of how much tuition rises in the future. It’s a market-safe way to protect funds earmarked for education.
There are no conservative options with Trump Accounts. Funds must be invested exclusively in low-fee US equity index funds, generally tracking large-cap benchmarks. With no ability to access funds until January 1 of the calendar year in which the beneficiary turns 18, a poorly timed market downturn could significantly reduce a Trump Account balance right when the student needs it most for college.
Accessibility
For many years, a common complaint of 529 plans was the narrow definition of qualified education expenses. Families hesitated to commit funds to a 529 when there was a chance their child might not attend college.
Recent legislation, however, including the OBBB, have further expanded the definition of qualified education expenses for 529 plans. Families can now use up to $20,000 per beneficiary per year for K-12 education, including outside tutoring, online learning platforms, educational therapies for students with disabilities, and dual-enrollment tuition for college courses taken in high school. You can also use 529 funds for certain professional certifications, or roll funds into a Roth IRA or ABLE account (annual and lifetime contribution amounts apply).
Since Trump Account funds are inaccessible until age 18, they cannot be used for any pre-college educational expenses, and any distribution taken for a professional certification would trigger the 10% early withdrawal penalty. Trump Accounts do allow for an ABLE rollover, but only if the entire balance is transferred directly into an ABLE account during the calendar year the beneficiary turns 17. This rollover is exempt from the annual ABLE contribution limit.
Contribution Limits
Annual contributions to Trump Accounts — including employer contributions — are capped at $5,000, which is significantly less than what you can save with Private College 529 and state-sponsored 529 plans, where contribution caps often reach into the hundreds of thousands of dollars. As a result, some families may find they are not able to save as much as they’d like for college with a Trump Account.
Conclusion
For families saving specifically for college, 529 plans are the stronger, more reliable option when compared to the new Trump Accounts. Trump Accounts offer a fresh and innovative opportunity to introduce kids to the benefits of investing, especially those who qualify for the federal $1,000 or Dell-funded $250 seed incentives, but their limitations make them far better suited for long-term savings than for funding education.
The strict all-equity investment requirement until age 18 exposes Trump Accounts to market swings at the exact moment most college savers seek stability. Combine that with the child being responsible for any gains on pre-tax contributions through pro-rata withdrawals and the relative inflexibility of the funds, and the account becomes even less ideal for paying for higher education.
By contrast, 529 plans were built with education as their sole focus. They offer tax-free withdrawals for qualified education expenses — a list that continues to grow — and flexible investment options tailored to a wide variety of strategies.
1Chappell, B. “Michael and Susan Dell commit $6.25 billion for investment accounts for kids.” NPR, December 2, 2025.
https://www.npr.org/2025/12/02/nx-s1-5628412/michael-susan-dell-trump-account-children-investment-saving
2Scott, J. “How Auto-Enrollment Could Help Trump Accounts Work For Everyone,” Aspen Institute, August 6, 2025.
https://www.aspeninstitute.org/blog-posts/auto-enrollment-trump-accounts/
3Internal Revenue Service. “Treasury, IRS issue guidance on Trump Accounts established under the Working Families Tax Cuts; notice announces upcoming regulations,” IRS Newsroom, December 2, 2025.
https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-trump-accounts-established-under-the-working-families-tax-cuts-notice-announces-upcoming-regulations
4Adams, H. “What to Know about Trump Accounts.” Charles Schwab, November 17, 2025.
https://www.schwab.com/learn/story/trump-accounts?msockid=01d1e595471b61201344f169463b6028
5Internal Revenue Service. “Treasury, IRS issue guidance on Trump Accounts established under the Working Families Tax Cuts; notice announces upcoming regulations,” IRS Newsroom, December 2, 2025.
https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-trump-accounts-established-under-the-working-families-tax-cuts-notice-announces-upcoming-regulations
6Ebeling, A. “‘Trump Accounts’ for kids come with $1,000 — and tax complications.” The Wall Street Journal, July 15, 2025.
https://www.wsj.com/personal-finance/trump-accounts-for-kids-come-with-1-000and-tax-complications-4b75b803
7Saving for College Editorial Team. “How Do I Select the Right Investment Option for My 529 Plan?” Saving For College, October 14, 2025.
https://www.savingforcollege.com/intro-to-529s/how-do-i-select-the-right-investments-for-my-529-plan
