Trump Accounts vs. 529 Plans and Roth IRAs: What’s Best for Your Child?

1. What are Trump Accounts?

Created under the One Big Beautiful Bill Act, Trump Accounts are savings accounts for children under 18, seeded with a $1,000 federal deposit for those born between 2025 and 2028. Families can contribute up to $5,000 annually (after-tax), and employers or charities can contribute as well (up to $2,500 per account).

Funds grow tax-deferred but are taxed as ordinary income upon withdrawal, with penalties for non-qualified uses before age 59½. Investments are limited to low-cost U.S. equity funds. While they offer a helpful head start, the accounts come with complex tax rules and less flexibility than other options.

Pro tip: Trump Accounts are particularly complex because they don’t offer the core tax benefits found in other savings vehicles. There’s no upfront deduction like with a traditional IRA, and no tax-free withdrawals as seen with Roth IRAs or 529 plans. Although investment growth is tax-deferred, any withdrawals, including the $1,000 federal deposit, outside contributions, and earnings, are taxed as ordinary income. Advisors should help clients navigate these nuances, as the rules may not be immediately clear.

2. How do Trump Accounts compare to 529 plans?

For many families, a Section 529 college savings plan may be a more advantageous option than a Trump Account, thanks to its higher contribution limits, broader investment choices, and more favorable tax treatment.

In 2025, individuals can contribute up to $19,000 per child to a 529 plan or $38,000 for married couples filing jointly. There’s no federal annual cap on contributions, and lifetime limits typically range from $235,000 to more than $600,000 depending on the state.

Importantly, 529 plans also allow for gift front-loading: Individuals can contribute up to five years’ worth of the annual exclusion amount, $95,000 per child in 2025 ($190,000 for married couples) in a single year without triggering gift tax, as long as they make no further gifts to that child during the five-year period. This allows families to jump-start college savings during high-income years or take advantage of favorable market conditions.

In contrast, Trump Accounts allow for up to $5,000 in annual after-tax contributions (indexed to inflation), plus the $1,000 federal one-time seed deposit for eligible newborns.

529 plans also offer more investment flexibility. Most provide age-based portfolios that start with higher stock exposure and gradually shift to more conservative assets like bonds or cash as college nears, helping manage risk. Trump Accounts, by comparison, must be invested in low-cost mutual funds or ETFs primarily composed of U.S. equities. Sector-specific funds are prohibited, and the expense ratio is capped at 0.1%. This limited menu may reduce an advisor’s ability to tailor risk as a child nears adulthood.

The tax treatment also differs. Withdrawals from 529 plans are tax-free when used for qualified education expenses. Meanwhile, Trump Account withdrawals can be taxed (often as ordinary income) and may incur penalties if taken before age 59½ without a qualifying exception.

529 plans have grown more flexible in recent years, including under the OBBA. The law now allows tax-free withdrawals for a wider range of education and workforce-related expenses, including credentialing programs, licensing exams, and continuing education. The annual K–12 withdrawal limit has also been doubled to $20,000 beginning in 2026, and non-tuition expenses like tutoring, curriculum materials, and dual-enrollment courses now qualify.

Additionally, as of 2024, up to $35,000 over a lifetime of unused 529 funds can be rolled into a beneficiary’s Roth IRA under specific conditions, offering a retirement planning advantage as well.

Pro tip: For high-income families who have already maxed out a 529 plan, a Trump Account might serve as a supplemental retirement savings tool. And of course, the $1,000 government-funded head start is a compelling bonus for everyone.

3. How do Trump Accounts compare to Roth IRAs?

For children with earned income, custodial Roth IRAs offer powerful long-term benefits. Contributions are made with after-tax dollars, and qualified withdrawals in retirement are completely tax-free. In 2025, teens earning less than the $14,900 standard deduction likely won’t owe federal taxes, making Roth contributions effectively tax-free both going in and coming out.

By contrast, Trump Accounts do not require earned income and are seeded with $1,000 for eligible newborns. Annual contributions are capped at $5,000, versus up to $7,000 (or the child’s income) for Roth IRAs. While both accounts grow tax-deferred, Trump Account withdrawals are partially taxable and may incur penalties before age 59½. Roth IRAs allow contribution-only withdrawals anytime without taxes or penalties and tax-free withdrawals after 59½, giving them the edge in flexibility and long-term tax efficiency.

Pro tip: Roth IRAs offer superior tax treatment and withdrawal flexibility, but they are available only if your child has earned income. Trump Accounts, in contrast, are accessible from birth and do not require work history, which may appeal to families looking to invest early for retirement or take advantage of the free head start.

Trump Accounts are probably best viewed as a supplement and not a substitute for smarter, more flexible tax-advantaged strategies. They deliver a great $1,000 head start, but for most families, especially those saving for education, 529 plans remain the most tax-efficient and versatile choice.

However, Trump Accounts may appeal most to high-income families who have already maxed out 529 or Roth contributions and want to boost long-term retirement savings for a child. They may also interest parents seeking employer or charitable contributions or families simply looking to take advantage of the federal seed deposit even if they don’t plan to contribute additional funds.

As always, the right approach depends on your client’s situation and their goals: college, retirement, or both. Be sure to compare all options carefully and don’t let the shiny new label distract from what really works.