Trump Account vs. 529: Why 529 Plans Are Still the Best Way To Save for College

Congress is rolling out a new child-focused savings vehicle, the Trump account, as part of H.R. 1, the 2025 budget reconciliation bill. The final version establishes these accounts as a special type of traditional (non-Roth) IRA.

While these accounts offer a promising $1,000 federal seed deposit and potential employer contributions, they’re far more limited and less favorable than 529 plans when it comes to education savings.

Below is a side-by-side comparison of how each account works, followed by why 529s remain the superior vehicle for college and other educational goals.

Quick comparison

Trump Accounts originally envisioned for education savings

When first proposed, Trump accounts supported a broader range of child-focused expenses, including education. The House version allowed penalty-free withdrawals for higher education, home buying, and more. But the Senate’s final version dramatically scaled that back.

Now, Trump accounts follow traditional IRA rules and have no education-specific exemptions. They are fundamentally retirement accounts with a head start, seeded at birth.

Can Trump Accounts still be used for education savings?

Technically, yes, but not efficiently.

Under traditional IRA rules, funds can be withdrawn before age 59½ for qualified higher education expenses without the 10% penalty, but you’ll still owe income tax on any earnings. This makes it far less favorable than 529 withdrawals, which are entirely tax-free.

Also, you can’t touch the account until the child turns 18. That rules out early K–12 expenses or using the funds during high school or early college.

In short, while Trump accounts can technically fund college, they’re not designed for it, and the tax cost can be significant.

Five reasons 529s win for education savings

1. True tax-free growth and withdrawal

A 529’s earnings are never taxed when used for qualified education expenses. This means both your contributions and the investment gains can be withdrawn entirely tax-free for eligible expenses like tuition, books, and room and board.

By contrast, Trump accounts only offer tax deferral; withdrawals are taxed as ordinary income, and you may owe a 10% penalty if you take funds out before age 59½ and don’t meet an IRA exception.

2. Higher contribution ceiling

529 plans allow for much larger contributions, especially through five-year gift front-loading. You can contribute up to $95,000 in one year without triggering the gift tax (with gift splitting between two parents).

The Trump account’s $5,000 annual cap (shared with any employer contributions) is modest in comparison and may not keep pace with rising college costs.

3. Flexibility if plans change

If one child gets a full scholarship, you can move 529 funds to another family member, even across generations. You can also roll leftover funds into the beneficiary’s Roth IRA (up to $35,000 over time).

Trump accounts are rigid: they can’t be transferred to another child and must follow IRA rollover and ownership rules.

4. Broader education menu, including K–12

529 plans can now cover a wide range of K–12 qualified expenses, not just tuition. That includes books, curriculum, tutoring, test fees, and more, up to $20,000 annually after 2025.

By design, Trump accounts cannot be accessed before age 18, eliminating any use during the K–12 years.

5. No penalty clock ticking

529s can remain open indefinitely and pass between generations. They aren’t subject to required minimum distributions (RMDs), and you can let the money grow for as long as you like.

Trump accounts become traditional IRAs at 18 and follow all associated IRA rules, including early withdrawal penalties and eventual RMDs starting in retirement.

Should everyone eligible for the $1,000 seed money open a Trump account?

Yes—any eligible child should receive the $1,000 federal seed deposit. There’s no income test, and the money can grow for decades, making it a valuable long-term savings opportunity.

To receive the deposit, parents will eventually need to open a Trump account through a process managed by the U.S. Treasury. However, specific instructions have not yet been released.

Parents shouldn’t view the Trump account as a substitute for a 529. While both accounts aim to support a child’s financial future, they serve very different purposes. Trump accounts are essentially retirement accounts in the child’s name.

Action plan for parents

1. Open a 529 now in the state plan that offers the best mix of low fees and, if available, a state tax deduction.
2. Ensure your child receives the $1,000 Trump account seed money. Open the account yourself, or let Treasury do so when you claim your child as a dependent.
3. Use Trump accounts for supplemental long-term savings only. Don’t rely on them as your main education vehicle.
4. Revisit every two years. You can adjust your strategy if Congress expands benefits or changes tax treatment.

Key take-away

Trump accounts are a solid head start for long-term savings, but they’re not built for education. For true tax-advantaged education savings, especially with expanded K–12 coverage, 529 plans remain essential. The best move for families: open both accounts if eligible, but don’t confuse their roles.