Trump Accounts vs. 529 Plans

The final version of the “one big beautiful bill” included the creation of Trump Accounts seeded with $1,000 in federal money for every child born this year through 2028. Kids born outside this window will be eligible for an account, but not the seed money.

These accounts are essentially a special type of traditional (non-Roth) IRAs. Outside of the federal seed money and potential employer contributions up to $2,500, Trump Accounts are more limited and less favorable than 529 Plans when it comes to education savings. Here are some of the main differences:

Contribution limits: Trump Accounts are limited to $5,000 per child indexed for inflation, and there is no deduction for federal or state taxes. Whereas, 529 Plans have an annual gift tax exclusion of $19,000 per donor, or a five-year “front-loaded” contribution of $95,000 can be made without using the taxpayer’s lifetime exemption of $13.99 million. Even greater contributions can be made to 529 accounts if the taxpayer wants to utilize a portion of their lifetime exemption. (Different states have different aggregate contribution limits in which the plan is deemed fully funded, ranging from $235,000 to 575,000).

Qualified distributions: Trump Accounts allow distributions after age 18 and follow traditional IRA distribution rules. Distributions do not have to be used for education purposes. 529 Plan distributions can be used only for college or apprenticeship expenses or K-12 tuition (up to $20,000 per year after 2025). Distributions can also be used up to $10,000 to pay student loans.

Tax treatments of earnings: Trump Accounts allow earnings to grow tax deferred. There is no federal tax deduction for the contribution, so only the earnings will be taxable upon distribution as ordinary income. 529 Plans also do not allow a federal deduction for contributions but the earnings when withdrawn for qualified education expenses are tax-free. Some states allow a deduction on their state income-tax returns for contributions to their state-sponsored 529 Plans.