Trump Accounts Are Here, but Should They Replace Your Child's 529 Plan?

February 15, 2026 • By Russell W. Hall, CFP®, CPWA®

Among the many interesting provisions of the One Big Beautiful Act (OBBBA) from 2025, the child savings accounts, commonly called “Trump Accounts” (shortened here to “TA”), stand out both for their unique structure and the lack of information on how they will actually function. Details are still being finalized, but here’s what we know so far:

• Accounts cannot be opened or contributions made before the law takes effect in July 2026. The accounts can be opened only by a parent or guardian. You can sign up now by making an election on Form 4547 to be filed with your 2025 tax return. You can also go to https://trumpaccounts.gov/ for more information.

• As part of the TA pilot program, accounts opened for U.S. citizen children born in 2025, 2026, 2027, or 2028 will receive an initial free $1,000 deposit.

• That pilot program contribution of $1,000 does not change eligibility for other types of contributions to the TAs, which can’t be more than $5,000 per year total from all sources ($2,500 limit if all from an employer). However, there can also be “general qualified contributions” from states or 501(c)(3) tax-exempt organizations that won’t reduce the contribution limit.

• Contributions can be made until January 1 of the year the beneficiary reaches age 18. Unlike IRA or Roth IRA accounts, beneficiaries do not need earned income to receive contributions. The contributions are not deductible (unless made by an employer, which the employer can deduct).

• Only one TA can be open at a time. However, having a TA does not preclude opening a 529 college savings account, IRA, or other types of accounts.

• The account can only be invested in any inexpensive (0.1% expense ratio or less) index mutual fund or ETF owning primarily U.S. companies. 

Starting the year that the beneficiary turns 18, it appears that the Trump Account will largely function like a non-deductible IRA. That is, standard (non-employer) contributions will be treated as basis that won’t be taxed at withdrawal. Growth will be taxed as ordinary income, plus a penalty if withdrawn before age 59 ½ and not used for a qualified expense, such as education, a first-time home purchase, or starting a business.

The account can also be rolled into an IRA or a Roth IRA at that point. We don’t know exactly how that will work. Normally, combining non-deductible IRA money with a traditional IRA creates an issue where a portion of every withdrawal is not taxable, which needs to be tracked and can be an onerous process. On the other hand, converting a TA to a Roth IRA would create taxation on the gain at the time of conversion (maybe not a bad thing if the beneficiary is a student and has no other income).

If something sad and unexpected were to happen, like the beneficiary passing away before age 18, the TA would be liquidated, and the inheritor would be taxed on the growth. If the beneficiary passed away at 18 or older, the TA would be treated as an inherited IRA, and those required distribution rules would apply.

The natural question: Should I save for beneficiaries in a 529 college savings account or a Trump account?  

In general, if saving for college is the goal, 529s should still be better than TAs. 529 accounts grow without taxation, and the growth is never taxed if the funds are spent on eligible college expenses. TAs will not have that option. In addition, annual contribution limits to 529 accounts are much higher than $5,000.

For parents of babies born through 2028, receiving a free $1,000 is attractive, and we think it makes sense to create an account to at least take advantage of that program.  

For other potential contributors, such as grandparents, we recommend discussing your plans with your family to determine your savings goal and which type of account makes the most sense.

To discuss these accounts and your situation further, please contact us. We are happy to meet with anyone for a free, no-obligation meeting. Call us at (714) 738-0220 to schedule a meeting, or click here to schedule an introductory call with one of our advisors.