Trump Accounts, proposed as part of the One Big Beautiful Bill, would provide every eligible newborn with a $1,000 government-funded investment account tracking a stock index, and families could contribute up to $5,000 annually until the child turns 18. Withdrawals would be permitted at set ages for specific purposes: half the funds could be accessed at 18 for education, at 25 for education or starting a business, and at 30 for a home down payment or business expenses. The idea of a government-seeded account that grows with the market and allows ongoing family contributions is appealing, especially for those who might not otherwise have the means to start investing early for their children. Over 18 years, with consistent contributions and average market returns, these accounts could potentially accumulate a sizable sum for a child’s future needs.
However, there are important limitations. Investment options would be restricted to a single government-selected index fund, removing the flexibility that 529 plans offer with their range of portfolios tailored to different risk tolerances and time horizons. This lack of choice could be a drawback for families who want more control over their college savings strategy or who prefer to adjust their investment mix as their child approaches college age.
Tax treatment is another key difference. While 529 plans allow for tax-free growth and withdrawals when used for qualified education expenses, Trump Accounts would tax qualified withdrawals at the long-term capital gains rate. Non-qualified withdrawals would be subject to ordinary income tax and a 10% penalty, which could significantly reduce the account’s value if funds are needed for unapproved purposes. State tax benefits that often accompany 529 contributions would not apply to Trump Accounts, making them less attractive for families seeking maximum tax efficiency.
Contribution limits also set the two options apart. Trump Accounts would cap annual contributions at $5,000, while 529 plans typically allow for much higher lifetime contribution limits—often exceeding $300,000 per beneficiary in many states. This makes 529 plans a more powerful tool for families aiming to fully fund a college education, especially as tuition costs continue to rise.
Finally, it’s important to remember that Trump Accounts are not yet law and would require Congressional approval, meaning the details could change or the proposal may not pass at all. For now, 529 plans remain the gold standard for college savings due to their flexibility, tax advantages, higher contribution limits, and proven track record. Families interested in saving for college should continue to explore all available options and consult with a financial advisor to determine the best approach for their unique circumstances. While Trump Accounts could eventually provide another tool for building a child’s financial future, 529 plans currently offer greater flexibility and more favorable tax treatment for college savings.
