July 24, 2026 · 12 min read · Personal Finance
The One Big Beautiful Bill created a new type of tax-advantaged children's account — commonly called "Trump accounts" — alongside the existing 529 plan. Both build wealth for your child's future, but the right choice depends on your goals, state, and whether your child will actually go to college.
The "Trump account" — formally the Money Account for Growth and Advancement (MAGA) account — was created by the One Big Beautiful Bill signed in 2025. It is a federally administered, tax-deferred savings account for children that functions somewhat like a traditional IRA but with a broader set of qualifying withdrawals.
The defining features: a $1,000 government seed contribution for children born between January 1, 2025 and December 31, 2028, a $5,000 annual contribution limit (after-tax dollars), and qualified uses that go beyond education to include first home purchases and business startups. Funds invested in the account are restricted to US-listed stocks and US stock funds — no international securities.
Growth is tax-deferred, not tax-free. When withdrawn, funds are taxed as ordinary income — similar to a traditional IRA. The key distinction from a 529 is the absence of a 10% penalty for non-education withdrawals: any qualifying use (education, home, business) or any use at age 30 is simply taxed as income with no additional penalty.
A 529 plan is a state-sponsored education savings account governed by IRS Section 529. It offers tax-free growth and tax-free withdrawals for qualified education expenses — the most powerful tax shelter available for college savings. Unlike the Trump account, money comes out completely free of federal income tax when used for education.
529 plans accept much larger contributions: the annual gift exclusion allows up to $19,000 per donor per beneficiary in 2026, and the superfunding election lets contributors put in up to $95,000 at once ($190,000 for couples) treating it as five years of contributions. Thirty-four states offer a state income tax deduction or credit for contributions — a significant bonus for residents of high-tax states.
The major downside: non-qualified withdrawals (anything that isn't education, K-12 tuition up to $20K/year, or student loan repayment up to $10K lifetime) face income tax plus a 10% federal penalty on the earnings portion. SECURE 2.0 added relief: up to $35,000 lifetime can be rolled to a Roth IRA after the account has been open 15 years, penalty-free.
| Feature | Trump Account | 529 Plan |
|---|---|---|
| Established by | One Big Beautiful Bill (2025) | IRS Section 529 (state-sponsored) |
| Who can open | Parent/guardian for eligible child | Anyone — parent, grandparent, friend |
| Annual contribution limit | $5,000 per child | $19,000 per donor (gift exclusion); $95K superfunding |
| Government seed money | $1,000 for children born 2025–2028 | None (state match programs vary) |
| Tax on contributions | After-tax (no deduction) | After-tax federally; 34 states offer deduction/credit |
| Growth | Tax-deferred | Tax-free (for qualified education expenses) |
| Qualified withdrawal tax | Taxed as ordinary income at withdrawal | Tax-free for education; taxed + 10% penalty otherwise |
| Qualified uses | Education, first home purchase, business startup | College, K-12 tuition ($20K/yr), student loan ($10K lifetime) |
| Investment options | US stocks and US stock funds only | Age-based funds, index funds, bond funds (varies by state plan) |
| Age of access | 18 (qualified uses); full access at 30 | Any age for qualified expenses |
| Rollover flexibility | No rollover mechanism announced | Up to $35K lifetime → Roth IRA (SECURE 2.0) |
| Account transfer | Beneficiary change rules TBD | Beneficiary can be changed to family member |
| Estate / gift tax | Contributions count toward gift exclusion | Contributions count toward gift exclusion; superfunding removes from estate |
| State tax deduction | None | Available in 34 states |
Tax-free growth + tax-free withdrawal is mathematically superior for education expenses. A $95K superfunded 529 at 7% for 18 years grows to ~$320K — all of it tax-free at withdrawal.
No 10% penalty for non-education use. The Trump account can be tapped at 18 for a first home purchase. A 529 used for the same purpose would lose 10% of earnings to penalty.
Business startup is a qualified Trump account use — no penalty. A 529 would face the 10% penalty for business use. Entrepreneurial children benefit from Trump account flexibility.
Claim the $1,000 government seed, then fund up to $5K/year. Open a 529 alongside for additional education savings — especially if your state offers a tax deduction.
The $95K superfunding option lets grandparents remove a large sum from their estate in one move while funding college. Trump accounts cap at $5K/year per child.
529 plans (especially Utah my529 or Illinois Bright Start) offer broad menus of index funds, target-date funds, and bond funds. Trump accounts restrict investments to US stocks/funds only.
Assume $5,000 invested each year for 18 years in US stocks averaging 7% annual growth. At the end, both accounts hold approximately $168,000. Here is what happens at withdrawal:
Bottom line on the math: if the money goes toward college, the 529 delivers roughly $37,000 more after tax on the same contributions — a gap that widens with larger contributions and higher tax brackets. If it goes toward a home or business, the Trump account wins by avoiding the 529's 10% penalty.
There is no rule against funding both a Trump account and a 529 for the same child. In fact, the two accounts complement each other well:
The dual-account approach hedges both outcomes: if your child goes to college, the 529 provides tax-free funding. If they don't, the Trump account provides penalty-free access for a home or business. The $1,000 seed essentially pays for both accounts to coexist.
The Trump account's investment menu is limited by law to US-listed stocks and US stock funds. This means no international equity exposure, no bond funds, and no target-date funds that shift to bonds near the child's college age. For an 18-year horizon, a 100% US equity portfolio is not unreasonable — but the lack of diversification into bonds or international stocks is a meaningful constraint.
529 plans — particularly highly rated ones like Utah my529, Illinois Bright Start, and Ohio CollegeAdvantage — offer full index fund menus including international equity, bond funds, and age-based portfolios that automatically shift to more conservative allocations as the child approaches college. This flexibility gives 529 accounts a risk-management edge that Trump accounts cannot match.
The 529 plan has been established law for decades with a deep ecosystem of state plans, fee comparisons (Morningstar rates them annually), and well-understood tax rules. Trump accounts were signed into law in 2025 and are still maturing:
For parents making decisions today, the safest approach is to open a 529 now (no urgency risk — rules are established) and add a Trump account as soon as your financial institution supports it to lock in the $1,000 government seed for eligible children.
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