991. Laura answers a listener's question about using a 529 plan versus a Trump Account and reviews which is better for a child’s education.
991. Laura answers a listener's question about using a 529 plan versus a Trump Account and reviews which is better for a child’s education.
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Hey, friends, and welcome back to the Money Girl podcast! This is Finance Friday, a special edition of Money Girl, where I answer your burning money questions.
Today’s topic is an email from Kristen in Dallas, Texas, who says:
“I listened to your podcast, How Do Trump Accounts Work for Kids?, and have a follow-up question. My husband and I have a son who was born in 2025, and we opened a 529 plan for his education. We’ve built up the balance on our own and with the help of family members. Can I combine our 529 plan with a Trump Account so I can add the additional $1,000 to our existing investments?”
Thanks for your question, Kristen, and congratulations on the new addition to your family! You’re way ahead of the game by funding a 529 for your newborn son. I’ll review whether 529 plans and the upcoming Trump Accounts can be combined, and discuss which option is best if you’re saving for a child’s education.
This is episode 991, and I appreciate you downloading the show! If you’re a new listener, I'm Laura Adams, an award-winning author, female money speaker, and founder of The Money Stack, my Substack newsletter. You can subscribe for free or become a paid member to access my live educational events.
I love hearing from you, so if something finance-related is on your mind, leave me a voicemail at 302-364-0308 or email me your question or comment via my contact page at LauraDAdams.com.
4 rules to know about Trump Accounts
As Kristen mentioned, a few weeks ago, I published an episode of Money Girl about Trump Accounts. They’re a new type of account for children established under the One Big Beautiful Bill Act (OBBBA). I’ve received several questions about Trump Accounts, particularly how they compare to 529 plans when investing for a child’s education.
I’ll review four rules for each account type and explain their pros and cons. First, here’s what you should know about Trump Accounts.
1. Some children qualify for a $1,000 benefit.
Since Kristen’s son was born recently, she’s in a prime position to take advantage of a Trump Account. U.S. citizens with a Social Security number born between January 1, 2025, and December 31, 2028, are eligible for a $1,000 federal government deposit into a Trump Account opened on their behalf.
Children born before 2025 are also eligible for a Trump Account until the calendar year they turn 18; however, they’re not eligible for the $1,000 government benefit.
2. Contributions are limited.
Starting in mid-2026, you can contribute up to $5,000 annually to a Trump Account. However, like 529 plan contributions, Trump Account contributions are nondeductible.
Note that most 529 plans have lifetime contribution limits rather than annual caps. Depending on your plan, the aggregate contribution limit could be up to $600,000. That allows families to save much more than with a Trump Account.
3. Funds are locked until the owner turns 18.
The short answer to Kristen’s question is “no.” You can’t roll funds from a 529 plan or any other account into a Trump Account, nor can you move funds out of one into a 529. Therefore, Kristen must open a separate Trump Account to get the $1,000 benefit for her son.
A Trump Account owner can’t use the funds until January 1 of the year they turn 18. That means a parent or child can’t spend a Trump Account on a private school or a college’s early-enrollment program, like you can with a 529 plan.
4. The account converts to an IRA.
Once the owner of a Trump Account reaches age 18, it automatically converts to a traditional IRA in their name and is subject to the account's contribution and withdrawal rules. Any new contributions must be based on the IRA owner’s earned income.
Distributions of untaxed IRA funds, such as account earnings and the $1,000 benefit, would be subject to ordinary income taxes plus an additional 10% penalty if the owner is under age 59.5.
However, there’s an IRA penalty exception for making withdrawals you spend on education at accredited public, private, or nonprofit post-secondary institutions that participate in federal student aid programs. Eligible expenses include:
While you must pay tax on any portion of education distributions that weren’t previously taxed, you skip the 10% early withdrawal penalty.
In addition, other IRA penalty exemptions include withdrawals of up to $10,000 for buying your first home, paying unreimbursed medical bills, and purchasing health insurance during unemployment. Remember that income tax is still due on any portion of distributions that weren’t previously taxed.
LISTEN ALSO: Traditional or Roth IRA–which is better?
4 rules to know 529 savings plans
I recommend that families have both a Trump Account and a 529 savings plan. You might consider the first a general account for a child’s future, and the second, their education. Here are four rules you should know about a 529 plan and why it’s a better choice for many types of education expenses.
1. Qualified withdrawals are tax-free.
529 plans are designed for education expenses and allow tax-free withdrawals. That means you’ll save more than using a tax-deferred IRA.
For instance, if you invest $10,000 and it grows to $50,000 in a 529 plan, you can spend the entire $50,000 on qualified education expenses. Every penny of growth in a 529 is tax-free when you spend it on a wide variety of qualified education expenses, including:
With a Trump Account, after the owner is 18, you avoid the 10% early-withdrawal penalty when paying for higher education, but you still must pay income taxes on the account's earnings. Depending on the owner’s tax bracket, that could mean paying 10%, 12%, or more of your savings to the government when you withdraw funds for education from an IRA.
2. The list of qualified withdrawals expanded.
While a 529 is most commonly associated with college, it now covers a wide range of academic paths, no matter a student’s age, in addition to the expenses mentioned above. For example, students can now pursue vocational education, such as trade schools and professional certifications, like getting a real estate license or becoming a cosmetologist. In addition, you can use up to $10,000 once in your life to help repay federal or private student loans.
Starting in 2026, 529 plans allow you to withdraw up to $20,000 per student per year for elementary and secondary school expenses. You can even use 529 funds for tutoring, testing fees, homeschooling supplies, and educational therapies. That gives you much more flexibility than a Trump Account, which remains inaccessible until a child turns 18.
3. You have more investment options.
One limitation of a Trump Account is that contributions can be invested only in broad U.S. equity indexes (such as the S&P 500). That’s perfect for long-term growth. But it’s risky if the funds are intended to cover college expenses in a year or two. In that case, you’d be much better off using a safe vehicle, such as a CD, with a predictable return that can’t lose value.
With a 529 plan, you have the flexibility to choose investments from a broad menu based on your timeline and risk tolerance. As your child approaches secondary school or college, you can shift investments into more conservative options, such as CDs or bonds, to help protect them.
4. You can do a Roth IRA rollover.
Given the benefits of a 529—such as tax advantages, flexibility, and high contribution limits—it earns my vote as the best account for saving for a child's education.
The main drawback is that if you use a 529 plan for non-qualified expenses, you must pay income tax plus a 10% penalty on withdrawals of account earnings. So, never put more in a 529 than you estimate your child will need for their total education expenses.
However, if you overfund a 529, there’s a new rule that allows you to roll over up to $35,000 (a lifetime limit) into a Roth IRA owned by the student. It’s a safety net if your child doesn’t use all the 529 funds in their name.
How to open a 529 plan and a Trump Account
To sum up, Kristen should definitely open a Trump Account to get the free $1,000 for her son. However, if her goal is to continue saving for his education, a 529 plan is the best way to get more investment flexibility and 100% tax-free growth.
Some great resources for choosing a 529 plan are Savingforcollege.com and College Savings Plans Network (CSPN). Check if your home state offers a tax deduction for using an in-state 529 plan and other features like investment options and lifetime contribution limits.
To open a Trump Account, submit IRS Form 4547, Trump Account Elections, or visit TrumpAccounts.gov to learn more.
Starting in May 2026, the U.S. Treasury will send information on how to activate the account and receive the $1,000 benefit. The earliest you can begin making Trump Account contributions will be July 4, 2026.
Initially, all Trump Accounts will be created and held with the Treasury’s designated financial agent. But at a later date, parents or guardians can transfer them to their preferred brokerage firm through a direct trustee-to-trustee rollover.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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