Trump accounts vs. 529 plans - making the right choice
Previously in this series: Articles 1–4 covered filing urgency, mechanics, tax treatment, and withdrawal strategies.
The big question: Which account should you choose?
After four articles explaining Trump Accounts in depth, many families are asking: "Should I open a Trump Account, a 529 plan, or both?"
The answer depends entirely on your family's goals, timeline, and financial situation. This final article provides the complete comparison you need to make an informed decision.
Side-by-side comparison
| Feature | Trump Account | 529 Plan | Winner |
|---|---|---|---|
| Primary Purpose | Long-term wealth building, retirement | Education expenses | Depends on goal |
| Government Seed Money | $1,000 (births 20252028) | None | Trump Account |
| Employer Matching | Up to $2,500/year (tax-free to employee) | Rare; varies by employer | Trump Account |
| Annual Contribution Limit | $5,000 from individuals/employers | No annual limit | 529 Plan |
| Lifetime Contribution Limit | $90,000 over 18 years | $235,000$600,000+ (varies by state) | 529 Plan |
| Federal Tax Deduction | None | None | Tie |
| State Tax Deduction | None | Yes (in 30+ states) | 529 Plan |
| Tax-Free Growth | Tax-deferred (not tax-free) | Tax-deferred | Tie |
| Tax-Free Withdrawals for College | NO Always taxable | YES 100% tax-free | 529 Plan |
| Tax-Free Withdrawals for K12 | NO Taxable + penalty | YES Up to $20,000/year | 529 Plan |
| Penalty-Free Withdrawals for College | YES But still taxable | YES And tax-free | 529 Plan |
| Withdrawals for First Home | Penalty-free up to $10k (taxable) | Taxable + 10% penalty | Trump Account |
| Withdrawals for Non-Education | 10% penalty + tax (before 59) | 10% penalty + tax | Tie |
| Age When Accessible | 18 | Any age | 529 Plan |
| Control Until Age 18 | Parent controls | Account owner controls | Tie |
| Investment Options (Before 18) | U.S. stock index funds only | Broad variety (stocks, bonds, target-date) | 529 Plan |
| Investment Options (After 18) | Anything (once converted to IRA) | Same as before | Trump Account |
| Maximum Annual Fees | 0.10% mandated cap | Varies (0.10%1.5%) | Trump Account |
| Can Change Beneficiary | NO Permanent | YES To other family member | 529 Plan |
| Required Minimum Distributions | Yes (age 73+ if not converted) | NO RMDs ever | 529 Plan |
| Roth IRA Conversion | YES At age 18 | YES Up to $35k after 15 years | Both |
| Financial Aid Impact | Student asset (20% assessment) | Parent asset (5.6% assessment) | 529 Plan |
| Can Use for Student Loans | NO (penalty applies) | YES Up to $10,000 | 529 Plan |
| Multi-Generational Transfer | NO | YES Indefinitely | 529 Plan |
| Estate Planning Benefits | Removes from estate | Removes from estate | Tie |
The clear verdict for different goals
Goal: Saving for college
Winner: 529 Plan (by a landslide)
Why:
- Withdrawals are 100% tax-free for qualified education expenses
- Higher contribution limits ($235,000–$600,000+ lifetime)
- Can use for K–12 tuition ($20,000/year starting 2026)
- Better financial aid treatment (parent asset vs. student asset)
- State tax deductions in 30+ states
- More investment options (bonds for stability near college age)
- Can change beneficiary if the child doesn't go to college
Trump Account disadvantages for education:
- Withdrawals for college are taxable (can cost 15–25% more than a 529 plan)
- Low contribution limits ($5,000/year may not cover costs)
- 100% stocks means high volatility near college age
- Cannot change beneficiary
Goal: Long-term wealth building/retirement
Winner: Trump Account (with Roth conversion)
Why:
- $1,000 government seed money starts compounding immediately
- Potential employer matching (up to $2,500/year tax-free)
- Ultra-low fees (0.10% cap)
- Can convert to a Roth IRA at age 18 for tax-free retirement income
- More flexible uses (home purchase, business, general retirement)
- Started at birth = 65 years of compound growth
529 Plan disadvantages for non-education:
- 10% penalty + taxes on non-education withdrawals
- Limited to $35,000 Roth conversion (vs. unlimited Trump Account Roth)
- Must be open 15 years before Roth rollover
For retirement savings, Trump Accounts with Roth conversion are superior.
Goal: Flexible savings (college or other uses)
Winner: Combination strategy (both)
Why:
- Use a 529 plan for education (tax-free)
- Use the Trump Account for everything else (home, business, retirement)
- Diversify tax treatment
- Maximize both government seed money and higher contribution limits
Decision framework: Which account(s) should you open?
Scenario 1: Newborn (2025–2028)
What you should do:
Definitely open a Trump account
- Claim the $1,000 government money (no-brainer)
- Even if you never contribute more, free $1,000 → $490,000 potential
Also, open a 529 Plan if planning for college:
- Superior tax treatment for education
- Higher contribution capacity
- Better financial aid treatment
Contribution strategy:
- Trump Account: $1,000 (government) + up to $2,500 (employer match if available)
- 529 Plan: Remaining college savings budget
Scenario 2: Child born before 2025 (No $1,000 seed)
What you should do:
Consider the Trump Account only if:
- Employer offers matching contributions
- You've maxed out 529 contributions
Prioritize 529 Plan:
- Better for education in every way
- Higher limits allow full college funding
- State tax benefits
Scenario 3: High-income family (can max both)
What you should do: Open both accounts
Trump Account contributions:
- Max: $5,000/year (family + employer combined)
- Purpose: Long-term wealth, Roth conversion, first home
529 Plan contributions:
- Max: $15,000–$50,000/year (depending on your capacity)
- Purpose: All education expenses K–12 through graduate school
Result:
- Child enters adulthood with both education funding AND wealth foundation
- Multi-million dollar head start by age 65
Scenario 4: Middle-income family (limited budget)
What you should do:
If a child is born 2025–2028:
- Open Trump Account (claim $1,000)
- Contribute enough to get employer match (if available)
- Put remaining savings in 529 Plan
If the child is born before 2025:
- Focus entirely on the 529 Plan
- Only open a Trump account if employer matching is available
Reasoning: Tax-free college withdrawals save you more than Trump Account benefits if you're not getting the $1,000 or employer match.
Scenario 5: Child unlikely to attend college
What you should do:
The Trump account is a better fit
- More flexible for vocational training, entrepreneurship, etc.
- Can use for first home, business startup
- Grows into retirement savings
- 529 plans penalize non-education uses
But consider:
- Even vocational/trade schools qualify for 529 tax-free withdrawals
- 529s can now cover $10,000 in student loans
- You can always change the 529 beneficiary to another child
Scenario 6: Child has special needs
What you should do:
Open both, with special considerations:
ABLE Account coordination:
- Trump Account can roll to ABLE at age 17 (disability savings)
- 529 can also roll to ABLE (up to annual contribution limit)
Consider priorities:
- If education likely: 529 first
- If education unlikely: Trump Account (can transition to ABLE)
The optimal strategy for most families
Based on the analysis above, here's the recommended approach for most American families:
The "Both Accounts" strategy
For children born 2025–2028:
Open a Trump Account immediately
- File Form 4547 with the 2025 tax return
- Claim $1,000 government contribution
- Set up employer matching if available
Open a 529 Plan immediately
- Choose a low-cost plan (in your state or another)
- Select an age-based investment option
- Automate monthly contributions
Contribution allocation:
- Trump Account: $2,500/year (assuming employer contributes the other $2,500)
- 529 Plan: Remaining college savings budget
At age 18:
- Use 529 first for all college expenses (tax-free)
- Convert Trump Account to Roth IRA (pay taxes at low rate)
- Let the converted Roth grow for 40+ years
Result at age 65:
- College degree with minimal debt (thanks to 529)
- $2–3 million in tax-free Roth IRA (from Trump Account)
- Total family investment: $100,000
- Total child receives: $2–3 million+ tax-free
This strategy captures:
- Free government money ($1,000)
- Free employer money (up to $2,500/year)
- Tax-free college funding (529)
- Tax-free retirement income (Roth conversion)
- Optimal use of both account types
The three key insights
- Trump Accounts are not college savings accounts – they're long-term wealth-building tools with a Roth conversion opportunity
- 529 Plans remain superior for education – 15–25% tax savings on college expenses make them unbeatable for education funding
- The optimal strategy is both – capture government seed money and employer matching in Trump Account, fund education through 529, convert Trump Account to Roth at age 18
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Ines Zemelman
founder and President at TFX
Ines Zemelman, EA, is the founder and president of TFX, specializing in US corporate, international, and expatriate taxation. With over 30 years of experience, she holds a degree in accounting and an MBA in taxation.
This article is for informational purposes only and should not be considered as professional
tax advice – always consult a tax professional.