The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, enacting sweeping changes to the U.S. tax code. While much of the attention has gone to changes in tax brackets, deductions, and clean energy credits, the bill also introduced a brand-new savings vehicle for families dubbed the “Trump Account.” At the same time, it increased some existing limitations and parameters for 529 plans.
For parents and grandparents already familiar with (and maybe even funding) 529 plans for children, this introduction raises an important question: Does your child need a Trump Account as well?
With this quick side-by-side comparison, you can better determine which fits into your family’s long-term plan.
Overview of 529 plans
529 plans, originally established by the federal government in 1996, were created to provide families with a tax-advantaged savings vehicle to help them save for future education costs. Named after Section 529 of the Internal Revenue Code, these plans quickly gained popularity thanks in part to their tax advantages—including tax-deferred growth and tax-free withdrawals for qualified education expenses. Over time, states began offering their own versions with varying features, investment options, and state tax benefits to encourage participation.1
As we know them today, 529 plans are still state-sponsored savings plans and used to help families cover educational costs, including K-12 tuition, apprenticeship programs, and college tuition. The account holder (usually a parent or grandparent) opens and funds the account, and the beneficiary is the student who will eventually use the money.
The two types of 529 plans
Parents have the option to open either an Education Savings Plan (ESP) or Prepaid Tuition Plans.
ESPs operate like an investment account. Contributions grow tax-deferred, which allows the funds to compound uninterrupted. Considering parents generally only have 18 years to invest for college (assuming they open the account when the child’s still a newborn), this tax advantage can be especially beneficial for achieving greater long-term growth.
Withdrawals then used for qualified education expenses are tax-free. As part of the OBBBA, these qualifying expenses have expanded to now include:2
- College tuition and fees
- Curriculum materials (including books and online educational resources)
- Tutoring
- Fees associated with standardized tests (like the SATs)
- Room and board
- Dual enrollment programs
- Apprenticeship programs
- Certain K–12 tuition (up to $20,000 per year, per beneficiary starting in 2026)
- Student loan repayment (up to $20,000 per beneficiary starting in 2026)
Prepaid Tuition Plans, on the other hand, enable you to buy—or pre-pay, as the name suggests—tuition credits (also called “units”) at today’s current rate. Considering the average annual cost of tuition and fees at a public in-state school has risen from $5,350 to $9,750 over the past 20 years, purchasing prepaid tuition credits can yield significant savings for parents and their students.3
The downside of Prepaid Tuition Plans is their general lack of flexibility. Should your child want to attend a private or out-of-state school, you may only be able to use the original balance of the account (which is what you contributed). This would mean forfeiting any earnings or gains the account has accumulated.
Considerations for 529 Plans
With an understanding of what 529 plans are and how they may bring value to your family’s long-term financial goals, let’s break down a few unique characteristics of these college-saving plans:
Tax treatment: While contributions are not deductible on your federal tax return, many states offer a state income tax deduction or credit if you contribute to their plan. For example, if you’re a New York resident and use a New York-sponsored 529 plan, you may deduct up to $5,000 (or $10,000 for joint filers) in 529 contributions from your state tax return.4
As we mentioned, investment earnings grow tax-deferred, and withdrawals used for qualifying educational expenses are tax-free as well.
Flexibility: With 529 plans, you do have the flexibility to change the beneficiary at any time to another family member. If you have multiple children, for example, you can fund one account and rename the beneficiary (this would work well if there’s an age gap). You can also keep any remaining funds growing in the account indefinitely, eventually naming a future grandchild as beneficiary when the time comes.
Introduced in the 2022 Secure 2.0 Act, unused funds can also be rolled over into a Roth IRA for the account beneficiary, as long as the account has been opened for at least 15 years. There is a $35,000 lifetime limit, and the rollover will be subject to annual Roth contribution limits. For this reason, it may take several years to roll over the remainder of the account (assuming it’s under $35,000).5
In addition, 529 plans can be rolled into ABLE accounts, which are state-run savings accounts for individuals with disabilities. This provision was previously set to expire at the end of 2025, but the OBBBA has made it a permanent feature of 529 plans.2
Limitations: Funds in a 529 plan must be used for qualified educational expenses to avoid taxes and penalties. Investment choices are limited to those offered by the plan, and changes are restricted to twice per year unless the beneficiary changes.
Overview of Trump Accounts
The OBBBA’s Trump Accounts are brand-new, available only for children born between January 1, 2025, and December 31, 2028. Parents can open an account for each eligible child and receive a one-time $1,000 contribution from the federal government. After that, they can contribute up to $5,000 per year on an after-tax basis until the child turns 18.2
Like a 529 plan, contributions grow tax-deferred. At age 18, the child can withdraw up to 50% of the account balance tax- and penalty-free for qualified purposes, including:2
- Higher education expenses (college tuition)
- Job training programs
- First-time home purchases
- Small business startup costs
At age 25, the entire balance becomes available—but only for these qualified expenses. Any withdrawals not deemed qualified will be subject to a 10% tax penalty. By age 30, the funds can be used for any purpose without penalty—though ordinary income tax will apply.2
Considerations for Trump Accounts
Now let’s take a look at some of the characteristics that make a Trump account stand out from a 529 plan:
Tax treatment: Like a 529 plan, contributions are made with after-tax dollars and don’t qualify for federal or state deductions. Earnings grow tax-deferred, and qualified withdrawals are tax-free.
Flexibility: Generally speaking, a Trump Account offers more flexibility than a 529. While withdrawals at a younger age are still subject to qualifying criteria, the list itself includes and extends beyond educational expenses. Even if the beneficiary doesn’t pursue higher education, the funds can be used for a first home or to start a business. Eventually, at age 30, there are no restrictions.
Limitations: Only children born during the 2025-2028 four-year eligibility window qualify for a Trump Account. Annual contributions are capped at $5,000, and withdrawals are fairly limited as well (at least until age 30).
So, which is right for your family?
Both accounts share a few core similarities:
- They’re designed to help families save for a child’s future.
- Contributions grow tax-deferred.
- Withdrawals for qualified expenses avoid taxes and penalties.
- Neither offers an upfront federal tax deduction for contributions.
That being said, their use cases are different.
A 529 plan is specifically geared toward educational expenses and related costs. Even with recent expansions (like Roth IRA rollovers), we believe it’s still best suited for families confident they’ll use the funds for schooling.
A Trump Account is broader in scope, allowing for education, housing, and entrepreneurial ventures. For that reason, it can be a better fit for families who want flexibility or whose children may not attend college.
In terms of contribution limits, 529 plan limits vary by state but are often quite high. It’s not unusual for states to allow total balances over $500,000.6
On the other hand, Trump Accounts are capped at $5,000 in annual contributions and only available for a child’s first 18 years—as long as the child is born between 2025 and 2028.
Our take? Consider your goals first.
If your primary goal is to save for education, we think a 529 plan is still the go-to choice. It offers higher contribution limits, potential state-level tax incentives, and decades of proven use. It can be an especially valuable savings tool for families who are confident their child will attend college and/or graduate school.
On the other hand, if you value flexibility or aren’t sure what path your child will take, the Trump Account offers more diverse options for how the money can be used. It’s also a way to prepare for major milestones beyond education, like buying a home or starting a business.
The good news is, you don’t have to choose between them. The two accounts can complement each other nicely if you’d like to build a substantial financial foundation for your child. A family might use a 529 to cover anticipated education costs and a Trump Account to provide a broader “launch fund” for adulthood. Used together, they can give your child both a strong educational foundation and the resources to pursue other life goals.
Helping your child cover the costs of college and more
The OBBBA’s introduction of Trump Accounts adds an interesting new option for parents and grandparents who want to invest in a child’s future. While 529 plans remain a powerful education savings tool, Trump Accounts broaden the scope of what those savings can fund.
For families willing and able to contribute to both, the combination can provide a flexible, tax-advantaged savings strategy that grows alongside the child—supporting them whether their path leads to college, entrepreneurship, homeownership, or all of the above.
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