Saving for a child: 529 plans and Trump accounts, side by side

A 529 plan pays for education with earnings that are never taxed if the money is spent on qualifying costs. A Trump account is a new government-seeded account that behaves like a traditional individual retirement arrangement once the child turns eighteen.

What changed for 2026

Trump accounts now exist, under the provisions the IRS lists as the Working Families Tax Cuts, and they cannot be funded before July 4, 2026. The federal government makes a one-time contribution for each eligible child's account, which is the part that makes opening one worth doing even if nothing else goes in.

The 529 side changed too. The annual allowance for elementary and secondary costs rose at the end of 2025 and now stands at $20,000 per beneficiary across all of that beneficiary's plans, which moves private school tuition from a partial use of a 529 to a realistic one.

The 529 in four sentences

A qualified tuition program, also called a section 529 plan, is established and maintained by a state or one of its agencies. It lets a contributor either prepay a beneficiary's qualified higher education expenses at an eligible educational institution, or pay into an account used for those expenses. Contributions are not deductible on a federal return, but earnings accumulate tax free while they stay in the account and the beneficiary generally does not include them in income.

The failure mode is worth knowing before you open one. Distributions are not taxable when they are used for qualified higher education expenses, but where a distribution is larger than the beneficiary's qualifying expenses for the year, a portion of the earnings in it becomes taxable.

What a 529 pays for now

The list is wider than most people think. Postsecondary tuition and the costs required for enrollment or attendance. Elementary and secondary tuition, curriculum and curricular materials, books, outside tutoring, standardized and advanced placement test fees, dual enrollment fees, and educational therapies for a student with disabilities, all inside the annual limit and counted across every plan that beneficiary has. Registered apprenticeships count too: where the program carries the Secretary of Labor's registration and certification, its charges and what it makes an apprentice buy both qualify. Student loan repayment for the beneficiary or a sibling, in limited amounts, though interest paid that way does not also qualify for the student loan interest deduction. And certain qualified postsecondary credentialing expenses.

What the tax law does not set is a contribution limit in dollars. Contributions cannot be more than the amount necessary to provide for the beneficiary's qualified higher education expenses, and the program's trustee or administrator is the one who tells you what its own ceiling is.

The 529 escape hatch

The objection to a 529 has always been the same: what if the child does not go. There are three answers. The beneficiary can be changed to someone else. A non-qualified distribution can be taken, with part of the earnings taxable. Or the balance, within limits, can move to the beneficiary's own Roth individual retirement arrangement.

That last route has conditions, and all of them have to hold. It must be a direct trustee-to-trustee transfer. It is subject to the Roth annual contribution limit as well as a lifetime cap. The 529 account must have been open for at least fifteen years as of the date of the distribution. And the amount cannot exceed what was contributed to the plan, with the earnings on it, before the five-year period ending on that date.

The Trump account in four sentences

A parent, guardian or someone else can establish a Trump account for an eligible child, and the federal government makes its one-time contribution to it. Other contributions from individuals and employers are allowed up to an annual total, and an employer may put in up to its own lower limit, counted against that same total rather than on top of it; what an employer contributes is generally deductible by it and excluded from the employee's taxable income. The money must be invested in mutual funds or exchange-traded funds that track a broad United States stock index. Money generally cannot be withdrawn before the year the child turns eighteen, and after that the account is treated like a traditional individual retirement arrangement with similar tax rules.

The comparison, in prose

The purposes differ before the tax treatment does. A 529 is money earmarked for education, and its whole advantage is that the earnings escape tax when they are spent on qualifying costs. A Trump account is general savings for the child, and its growth is deferred rather than forgiven, taxed later under the rules that apply to a traditional retirement arrangement.

The plumbing differs too. A 529 is run by a state, so the menu of investments, the fees and the paperwork are that state's, while a Trump account sits in a federal framework with a prescribed kind of investment. And access differs in the way that matters most to a parent: a 529 can be spent whenever a qualifying education cost arrives, at any age, while a Trump account is generally locked until the year the child turns eighteen.

Which to fund first

This article cannot answer that for you, but the questions are answerable. Is education the actual purpose of the money, and is the cost near. Has the one-time federal contribution been claimed for the child, since it is the only money on the table that is not yours. Is there an employer contribution available at work, which is the same argument. Is a state income tax deduction on offer for 529 contributions, which some states allow and which Texas, having no state income tax, does not.

One point sits behind all of them. Contributions to a 529 are gifts to the beneficiary, so the annual gift tax exclusion of $19,000 is the practical planning number for a grandparent putting money in. A new baby and Trump accounts covers opening the account and the election that goes with it.