Parents of children born in 2026 are in line to kickstart savings for their newborn. For this article, let’s call the newborn Tammy and assume that her parents are considering whether to use 529 accounts or the new Trump accounts to save for Tammy’s future.
Spoiler alert: This article shows why it makes sense for them to use both 529 accounts AND the new 530A Trump accounts.
What are 530A Trump Savings Accounts?
The One Big Beautiful Bill, signed into law by President Trump on July 4, 2025, included Section 530A establishing the new savings accounts designed to provide children age 10 or younger with a jump-start to savings. U.S. Citizens born between January 1, 2025 and December 31, 2028 are eligible to receive $1,000 in the new account. Children age 10 or younger born before 2025 living in zip codes with median incomes below $150,000 are eligible for a $250 deposit. Tammy’s parents can open an account for her online in the coming months or using IRS Form 4547e. The expected launch date for the program is July 1.
These accounts are structured similarly to adult retirement-style investment accounts. Tammy’s parent or guardian will manage the account which will be invested in diversified low-cost index funds until she reaches 18 and becomes the account owner. Like most investments, there is no guaranty against a loss and past performance is not an indication of future returns.
Parents and other contributors, including employers, will be permitted to contribute up to $5,000 per year with the employer contributing no more than $2,500. Earnings grow on a tax-deferred basis, meaning no taxes are owed while the funds remain invested. Withdrawals will be subject to federal and state income tax in the year of a withdrawal, and early withdrawals may be subject to penalties unless used for approved purposes.
The core idea behind the new child 530A Trump accounts is flexibility. These accounts may be used for a wide range of future goals once the beneficiary turns 18, including education, purchasing a home, starting a business, or saving for retirement.
What Are 529 Accounts?
529 Accounts were established in 1996 initially to help families save for college with very favorable tax treatment. Since then, they have been significantly expanded beyond college to permit withdrawals tax-free for qualified expenses including:
- Up to $20,000 annually for K-12 tuition and certain other expenses
- Up to $10,000 per beneficiary for student loans
- Fees and expenses for approved Apprenticeship, Credential, Professional Licensing, and Certificate programs
- Rolling up to $35,000 of savings to a beneficiary’s Roth IRA
529 accounts are owned and controlled by the account holder, typically the parents or grandparents who set up the account, not the child beneficiary. The owner may switch beneficiaries including to themselves at any time and is not required to list the account as an asset for estate purposes.
The annual amount that can be contributed to a 529 account without triggering federal gift taxes is limited to the federal gift tax exclusion, currently $19,000 per year per taxpayer. If Tammy’s parents file jointly, they may contribute up to $38,000 each year. A special provision allows parents to superfund a 529 account with 5 years’ worth of gifting in a single year, which means they can make a lump sum contribution up to $190,000 tax-free to Tammy. Each state program also has a maximum contribution limit that is generally more than $250,000.
There are two types of 529 plans: Savings Plans and Prepaid plans. You can find and compare 529 Plans here. Savings Plans are designed to permit tax-free savings with several investment options. Prepaid Plans are designed to lock in tomorrow’s tuition at today’s prices, often at schools within a state. The Private College 529/ CollegeWell Plan also offers a 529 Prepaid Plan nationally for approximately 300 mostly private colleges.
When compared to other savings accounts, such as brokerage accounts, 529 Plans enjoy favorable treatment in the federal financial aid process. Other accounts can reduce financial aid by up to 20% whereas 529 accounts for the beneficiary reduce financial aid by 5.64%. For every $10,000 of savings, brokerage accounts could reduce financial aid by up to $2,000, if they are owned by the student. 529 Plans reduce aid by $564, since 529 plans for a dependent student are considered a parent asset, even if they are in the student’s name.
Both 529 Savings and Prepaid accounts are widely regarded as the most tax-efficient ways to save for college.
What Should Tammy’s Parents Consider when Thinking about 529 and Trump Savings Accounts?
- Their goal(s) for her savings
- The government’s offer of $1,000 seed funding
- The flexibility offered by each type of account
- How much they can contribute
- Who owns the account
- Tax effects
- How much will be saved for Tammy on her 18th Birthday
The first two don’t need much discussion. Tammy’s parents should open a Trump Account and thank the government for the $1,000. It’s a free money no-brainer.
As for the other points:
- Flexibility: As noted above, the Trump Accounts are modeled after IRA accounts with broad potential uses. 529 Accounts are designed to primarily promote saving for education.
- Advantage: Trump Accounts
- Contributions: Trump Account, $5,000/yr.; 529 accounts, a lot more.
- Advantage: 529s
- Account Owner: Tammy’s parents will set up her Trump account and manage it until she turns 18. Then it is hers free and clear. Unless her 529 account is rolled into her Roth IRA, Tammy will not own the account. Her parents maintain ownership and control until it is closed or transferred.
- Advantage: Most would say 529s
- Tax Effects: Trump Accounts are taxed at the tax rate that will be in effect when the money is distributed from the account. 529s are tax-free as long as they are used for qualified distributions.
- Advantage: 529s, by a country mile
- Savings Potentially Available on Tammy’s 18th Birthday
- Advantage: 529s, by 2 miles. Read on.
If Tammy’s parents take the free money and they do not add to it, she will have about:
- $2,400, if it earns 5% each year
- $2,850, if it earns 6% each year
- $3,400, if it earns 7% each year
- 1% less than the 20-year historical S&P average
- $32,000, if it earns 21.23%
- The 3-year average return on the S&P 500 for 2023, 2024 and 2025. Remember, past results are not an indication of future performance. While it would be nice, don’t count on 20%+ returns for 18 years!
Now, let’s assume that Tammy’s parents or others, maybe even their employers, add $5,000 per year to the account. On her 18th birthday, here’s what she will have assuming the account continues to earn:
- 5%: $147,700
- 6%: $164,000
- 7%: $182,000
- 21.23%: $885,000 (we can only hope)
To complete a fair analysis, let’s look at what happens when Tammy pays tax on her Trump account. Today’s lowest federal marginal tax rate is 10%. If she lives in New York, the lowest state tax rate is 4% reducing her savings 14% across the board. This means she will have this much more savings in her 529 account when compared to her Trump account based on an initial contribution of $1,000 and $5,000 annually based on the investment returns we’ve been working with:
- 5%: $20,700 more in 529 account than Trump account
- 6%: $23,000 more in 529 account than Trump account
- 7%: $25,500 more in 529 account than Trump account
- 21.23%: $126,000 more in 529 account than Trump account
The Bottom Line
There is no need for Tammy’s parents to choose between a 529 Account and a Trump Account. They should open a Trump Account as soon as they are available. Free money is free money.
If their goal is to start an education savings account, they can also open a 529 Savings and/or 529 Prepaid Account to take advantage of the substantial tax benefits and ability for them to maintain ownership of the account.
Families who understand the strengths and limitations of each option can design a balanced savings strategy that supports both educational goals and long-term financial security.
In all cases: Saving a dollar today is better than borrowing one tomorrow®
® – Invite Education, LLC