25 Sep How should the $1,000 Trump accounts factor into savings plan?

Q. I saw the $1,000 accounts for new babies allow you to save more to the accounts. I was planning to use a 529 plan for my grandchild who will be born before the end of the year. Is there a benefit to the other account instead of the 529 plan, which is what I have done for my other grandchildren. Thank you for your help.
— Nana

A. The account you are referring to is probably the “Trump account” that was included in the recently passed tax bill.

Here’s how it works.

There is a one-time $1,000 government contribution for eligible children born between 2025 and 2028, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York.

He said parents and others can contribute up to a combined $5,000 yearly for a child and the child can use it for any purpose after attaining age 18.

“There is no tax deduction for contributions but money inside the account grows tax free until withdrawals,” he said. “Like in an Individual Retirement Arrangement (IRA), withdrawals are taxed as ordinary income and incur a penalty before age 59 ½ years , except for certain purposes such as higher education, first time home purchase and medical expenses.”

Money placed in the account can only be invested in low-cost index funds.

Then there’s the 529 plan, a tax-advantaged investment account specifically for saving for education purposes, Panambur said. There is no tax deduction for contributions, but money grows tax deferred and withdrawals for eligible higher education expenses are not taxed, he said.

Plus, some states offer a tax deduction for contributions.

Panambur said a 529 plan is a better option for saving money for education.

“The use of the accounts has been made more flexible in recent years, such as being able to use up to $10,000 — $20,000 from 2026 onwards — for K-12 expenses and the ability to transfer up to $35,000 into a Roth IRA if some conditions are met,” he said. “The account can also be transferred to another family member at any time.”

The so-called Trump account can be used for long-term savings for any purposes subject to the limitations discussed above.

“For children born between 2025 and 2028, a good reason to at least open an account is to receive the $1,000 government contribution,” he said. “It also seems that after the child turns 18, a Trump account, like an IRA, can be converted to a Roth IRA, which would make the account attractive. IRS confirmation on this is awaited.”

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This story was originally published in September 2025.

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