‘Trump Account’ or 529? How to Pick Investment Accounts for Kids

A $6.25 billion gift from Michael and Susan Dell is shifting the calculus for parents looking to save for their kids’ futures. 

They come with the promise of free money and financial stability — but don’t forget to read the fine print.

That’s the takeaway from financial advisers on so-called “Trump accounts,” in light of this week’s announcement that billionaires Michael and Susan Dell will donate $6.25 billion to build on the program.

Under the initiative, created as part of President Donald Trump’s One Big Beautiful Bill Act, the government will automatically seed an account with $1,000 for each child born between 2025 and 2028. Meanwhile, the Dells’ gift will go to the Treasury Department and will fund accounts for an additional 25 million children aged 10 and under who were too old to be eligible for the initial government funding.

These accounts add to the options for parents looking to save for their kids’ futures. But advisers say families should carefully consider the tax implications and investment limitations of Trump accounts before ditching other vehicles, such as tax-advantaged 529 plans, custodial Roth IRA accounts or brokerage accounts.

“We already have savings vehicles available that are easier to access, have more investment flexibility, and if not used for college can be withdrawn for Roth IRA contributions,” said Catherine Valega, owner of the financial planning firm Green Bee Advisory in Boston.

Here are the pros and cons:

The Benefits

Kids born between 2025 and 2028 will have accounts automatically seeded by the US Treasury, effectively providing them with free cash. The accounts will be invested in low-cost US stock index funds and locked up until the child turns 18. Then, they essentially become individual retirement accounts, which can be used penalty-free for certain expenses like higher education or first-time home purchases.

Beginning July 4, any parent can set up an account for their child and contribute up to $5,000 a year. Employers can also pitch in $2,500 annually without affecting workers’ taxable income. Additional gifts from philanthropists like Dell don’t count against the limit.

Advisers say parents who qualify for free money from Trump accounts would be smart to take it. Even small sums left in investment accounts can grow significantly thanks to compound interest.

Take an account funded with just $1,000. After 18 years, it could reach over $3,380, assuming the market returns roughly 7% a year adjusted for inflation, as it has since 1980. If left in the market for 65 years, that same account with no additional contributions could reach over $81,000.

The Drawbacks

The main downside of the Trump accounts is that they have far fewer tax benefits than 529 plans. In a 529 plan, withdrawals are tax-free for qualified educational expenses, and contributions are often eligible for state income tax deductions.

In the Trump account, the tax picture is complicated and the US Treasury hasn’t yet clarified how exactly it will work. Under the law, recipients won’t pay taxes on any post-tax contributions to their accounts, such as those from parents and relatives, but any gains or tax-free contributions from government, philanthropists or employers will be taxed like ordinary income upon withdrawal.

In addition, beneficiaries would face a 10% withdrawal penalty if money is used for non-qualifying expenses. Qualified expenses include higher education, as well as first-time home purchases and birth or adoption costs up to certain limits.

Advisers point to contribution limits as another potential issue. While Trump accounts only allow parents to contribute $5,000 a year, 529 plans have much higher limits. In 2025, individuals can contribute up to $19,000 annually without triggering federal gift tax rules, and couples can contribute $38,000. For those looking to frontload, the IRS allows a five-year “superfund” of up to $95,000.

Elliot Pepper, financial planner and director of tax at Northbrook Financial in Baltimore, also points out that Trump accounts come with limitations on what they invest in.

By law, Trump accounts can only be invested in US equity index funds. American indices have had a stellar track record in recent years, but there is no guarantee they continue to outpace markets abroad. A 529 or custodial brokerage account would let investors back a more diversified range of assets.

The Takeaway

Given the differing costs and benefits, advisers say it’s best to diversify.

Along with 529 plans, experts suggest custodial Roth IRAs for children who have earnings from work. These are opened by an adult, but funded by a child’s earned income and taxed like a standard Roth. Earnings grow tax-free, and withdrawals in retirement are untaxed. There is no age requirement to open one, but the income must be from a real job, or you could face an IRS audit.

“Trump accounts are a part of a solution,” said Judy Brown, a wealth adviser at SC&H Wealth in Washington, DC. She said she could see opening both a Trump account and a 529 for diversification, higher contribution limits and possible state tax efficiency.

— With assistance from Ben Steverman