A new financial tool, dubbed the “Trump account” or 530A plan, is set to launch this year, offering parents a tax-advantaged way to invest in their children’s financial futures. The initiative, backed by bipartisan support in the 2025 tax bill, aims to jumpstart long-term savings for millions of American children. But how do these accounts work, and are they right for your family?
What Exactly Are Trump Accounts?
These accounts function similarly to individual retirement accounts (IRAs), allowing parents to contribute up to $5,000 annually. The key benefit is tax deferral, meaning earnings aren’t taxed until withdrawn.
Key Features:
- Eligibility: Any parent with a child under 18 can open an account starting July 5th.
- Government Seed Money: Babies born during a second term of a specific administration will receive an initial $1,000 deposit.
- Withdrawal Restrictions: Funds are locked until the child turns 18 and can only be used for specific expenses like education, homeownership, or starting a business.
- Long-Term Growth: The intent is for the money to compound over decades, potentially reducing the need for aggressive savings later in life.
Who Benefits Most?
An additional $6.25 billion donation from Michael and Susan Dell will provide lump sums of $250 to 25 million children in low-income households. However, the exact criteria for eligibility remain unclear.
Even modest contributions can make a difference: a $1,000 deposit left untouched could grow to $2,000 by age 18 with a conservative 6% annual return.
“Sometimes in this conversation, people get hung up on the idea that $1,000 — especially $1,000 you can’t use right now — doesn’t feel very exciting. But if you saw $1,000 laying on the street, you would be thrilled.”
How Do They Compare to 529 Plans?
Both 530A and 529 plans offer tax advantages for education savings, but differ in key ways. 529 plans allow higher annual contributions (up to $200,000 depending on the state) and tax-free withdrawals for qualified educational expenses.
Trump accounts are designed for long-term growth, with the possibility of rolling up to $35,000 into a Roth IRA. However, withdrawals for non-qualified expenses may incur penalties.
Here’s a quick comparison:
| Feature | 530A (Trump Account) | 529 Plan |
|---|---|---|
| Primary Goal | Retirement | Education |
| Tax on Withdrawals | Yes | No (for qualified expenses) |
| Contribution Limit | $5,000/year | Up to $200,000/year |
Which Account is Better?
If college is a certainty, a 529 plan is likely the better choice due to tax-free withdrawals. If future plans are uncertain, a Trump account provides flexibility with potential long-term growth.
Financial experts recommend maximizing both options if possible: “There’s no reason that you can’t have a 529, and a Trump account,” says one advisor. “I don’t think that there’s a reason not to try to do both.”
Conclusion: The new 530A accounts offer a valuable opportunity for parents to invest in their children’s futures, though careful consideration should be given to long-term financial goals and potential alternative savings plans. The key is to understand the benefits and limitations of each option before making a decision.
