Trump Accounts vs. §529s, Roth IRAs and custodial accounts
Trump Accounts give families a new way to begin long-term savings for a child before the child has earned income. Clients are hearing plenty of headlines but not much nuance. As families decide where to direct their child-savings dollars, tax professionals need to explain how Trump Accounts compare with §529 plans, Roth IRAs and custodial accounts without drifting into investment advice or overstating flexibility.
Trump Accounts open a new lane for child savings
Trump Accounts are traditional IRAs with special rules during a growth period that ends Dec. 31 of the year before the beneficiary turns 18. During this period, distributions are generally prohibited and investments are restricted to qualifying low-cost funds.
Key features include:
- The child must be under 18 at the end of the election year and have a valid Social Security number.
- Contributions began July 4, 2026.
- The annual limit for nonexempt contributions is $5,000 during the growth period, indexed after 2027.
- Eligible children born from 2025 through 2028 may receive a one-time $1,000 federal contribution.
Individual and family contributions are nondeductible and create basis. Earnings grow tax-deferred. Certain government, nonprofit and employer contributions may be excluded from income and may not create basis. After the growth period, traditional IRA distribution rules generally apply. Additional regulations and compliance guidance are still expected and continue to roll out.
§529s still rule the education lane
§529 plans remain the primary tax-favored vehicle for education savings. Earnings can be withdrawn tax-free when used for qualified education expenses. The account owner also retains control, including the ability to change the beneficiary to another eligible family member.
The key differences are:
- Purpose: Trump Accounts support long-term, retirement-style savings; §529s focus on education.
- Tax benefit: Trump Accounts provide tax-deferred growth; §529s provide tax-free qualified education distributions.
- Access: Trump Account distributions are generally blocked during the growth period. Section 529 plan distributions are available anytime, although nonqualified withdrawals may trigger tax and penalties on earnings.
- Investments: Trump Accounts use qualifying low-cost investments during the growth period. Section 529s generally provide a plan-selected investment menu.
For families already funding a §529, a Trump Account creates an additional savings lane, not a replacement for education funding.
Roth IRAs and custodial accounts stay in the mix
A Roth IRA may remain the strongest long-term option for a child with earned income. Qualified withdrawals can be tax-free, and contributions are accessible without the same restrictions that apply to Trump Accounts. Roth IRA contribution and earned-income limits still apply.
Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts provide broader investment and spending flexibility but no special federal income tax benefit. Taxable income generated by the account is generally reported annually by the child and may be subject to the kiddie-tax rules. Unrealized appreciation is not taxed until it is realized. The child receives control at the applicable age under state law.
Achieving a Better Life Experience (ABLE) accounts may be important for eligible beneficiaries with disabilities. During the calendar year the beneficiary turns 17, the entire Trump Account balance may be transferred directly to the beneficiary’s ABLE account under §529A.
Match the account to the client’s goal
|
Feature |
Trump Account |
§529 plan |
Minor Roth IRA |
Custodial or taxable account |
|
Primary purpose |
Long-term savings |
Education |
Retirement and other permitted uses |
General savings |
|
Who may contribute |
Family, employers, governments and nonprofits |
Generally anyone |
Child or family, limited by child’s earned income |
Generally anyone |
|
Annual limit |
Generally $5,000 during growth period, plus qualifying exempt contributions |
Plan limits; gift-tax rules apply |
IRA limit or earned income, if lower |
No contribution limit |
|
Contributions tax treatment |
Nondeductible; certain contributions excluded from income |
No federal deduction; possible state benefit |
Nondeductible |
No deduction |
|
Earnings tax treatment |
Tax-deferred |
Tax-free for qualified education expenses |
Tax-free for qualified withdrawals |
Generally taxable when earned or realized |
|
Early access |
Generally unavailable during growth period |
Available, but nonqualified earnings may be taxed and penalized |
Available, although tax or penalties may apply |
Subject to custodial and state-law restrictions |
|
Investments |
Qualifying low-cost funds |
Plan menu |
Broad choices |
Broad choices |
Finally, explain the child savings options to clients in plain English
The tax professional’s role is to explain the tax rules so the client can decide with their financial advisor which option fits the family’s goals:
- Trump Account: Begin IRA-type savings before the child has earned income, with nondeductible contributions and tax-deferred growth.
- §529 plan: Save primarily for education, with tax-free withdrawals for qualified education expenses.
- Roth IRA or custodial account: Consider a Roth IRA for tax-free qualified withdrawals when the child has earned income or a custodial account for greater flexibility with generally taxable earnings.
By explaining how each option is taxed, you can help clients and their financial advisors choose the account that best supports the family’s goals.
About the author(s)
NATP Staff