26 Jun Are the new Trump accounts better than a 529 plan?

Q. The new Trump accounts give a chance to add more money to it. Is this better to use than a 529 plan?
— Mom

A. There’s a lot to talk about here.

And no one answer is right for everyone.

As with any investment vehicle, you need to understand how it works, its pros and cons and whether it makes sense for you. And these two plans have important differences.

529s are dedicated college savings plans whereas Trump Accounts can help with college savings, but can also be used for future retirement savings, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

Trump Accounts were created by the One Big Beautiful Bill Act (OBBBA), and signed into law on July 4, 2025

“They are essentially a custodial Traditional IRA for children under 18,” Kane said. “At age 18, the Trump Account converts to a regular Traditional IRA.”

Eligible people can sign up for the accounts starting July 4, 2026 at trumpaccounts.gov.

You’ll need your child’s Social Security number, date of birth, and address to sign up, Kane said.

“The government will make a $1,000 one-time contribution for children who are U.S. citizens born Jan. 1, 2025 through Dec. 31, 2028,” Kane said.

Then you can add your own contributions to a maximum of $5,000 a year, indexed for inflation starting in 2028, she said. Employers can also contribute up to $2,500 annually per employee, but that counts as part of the $5,000 maximum. The government contribution does not count against that maximum.

There are no income restrictions for contributors. The investment options are limited to low-cost index funds that allocate at least 90% of their holdings in U.S. companies, she said.

During the “growth period,” — from birth to age 17 — there can be no distributions.

“The only exceptions are if you rollover the account to another Trump Account at a different financial institution, one-time ABLE account transfer during the year the child turns 17 and death,” Kane said.

At age 18, the account will be converted to a traditional IRA and follow traditional IRA distribution rules, she said.

In comparison, a 529 plan is specifically meant for college savings, and you can save more each year to a 529 plan with certain limits,

“They can provide for tax free growth and distributions if funds are used for qualified education expenses,” she said.
Funds can be used for K-12 withdrawal limit: $20,000 per student per year, which was doubled under OBBBA, she said. You can also use a lifetime maximum of $10,000 from the account to pay back student loans.

Also, you can roll up to $35,000 after the account is open for more than 15 years to a Roth IRA, she said.

If your goal is to save for education, a 529 is a better choice because of the tax-free growth and tax-free withdrawals, while distributions from Trump accounts are taxed as ordinary income, Kane said.

But Trump Accounts offer free money — the $1,000 opening deposit by the government — though it’s not necessarily a forever payment for future children. It’s something of a pilot program, and funding for children born after 2028 has not yet been determined.

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This story was originally published in June 2026. 

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.