Trump Account vs. Roth IRA vs. 529: Where Should Your Kid's Money Go?

Family Finance · 7 min read · Updated October 21, 2026

Trump Accounts are all over the news, and parents are asking the same question: should I open one for my kid? The honest answer is — it depends on what you compare it to. There are three main ways to save for a child, and on taxes, the Trump Account finishes last for most families.

Here's the plain-English breakdown.

The verdict first

• If your child has earned income (a job, freelance work): a custodial Roth IRA usually wins. Tax-free growth, tax-free qualified withdrawals.
• If the money is for education: a 529 plan usually wins. Tax-free withdrawals for qualified education expenses, and you can change the beneficiary to another child.
• A Trump Account makes the most sense if your child was born between 2025 and 2028 and gets the free $1,000 from the government. Without that $1,000, it's essentially a traditional IRA your child can't touch until 18 — and withdrawals are taxed as ordinary income.

Option 1: Trump Account (the new kid on the block)

Created by the One Big Beautiful Bill Act (signed July 4, 2025), Trump Accounts are IRA-style accounts for children under 18.

How it works:

• A parent, grandparent, or guardian opens the account (IRS Form 4547 or trumpaccounts.gov). The child needs a Social Security number.
• The $1,000 question: children born January 1, 2025 – December 31, 2028 get a one-time $1,000 federal deposit. Children born before 2025 can still have accounts — they just don't get the $1,000.
• Anyone can contribute up to $5,000 per year, per child (all contributors combined). Contributions are after-tax — no deduction.
• Employers can contribute up to $2,500 per year per employee, excluded from the employee's federal taxable income.
• During childhood, the money can only be invested in a broad U.S. stock index fund (like an S&P 500 fund) with fees capped at 0.10%. No picking stocks.

The catch — withdrawals:

• Nothing comes out before age 18. The money is locked.
• At 18, the account becomes the child's own traditional IRA, and the child controls it.
• Withdrawals are taxed as ordinary income, plus a 10% penalty before age 59½ (with the usual IRA exceptions).

Example: The Rivera family opens Trump Accounts for their two kids, born 2016 and 2019. No $1,000 seed for either — they contribute $5,000 a year each. The money grows tax-deferred, but when the kids withdraw it decades later, every dollar is taxed as ordinary income.

Option 2: Custodial Roth IRA

A Roth IRA for a minor, managed by a parent until the child reaches adulthood (18 in California).

How it works:

• The child must have earned income — wages from a job, freelance or self-employment income. Allowance doesn't count.
• You can contribute the lesser of the child's earned income or $7,500 for 2026 (the annual IRA limit).
• Growth is tax-free, and qualified withdrawals are tax-free — the best tax deal of the three.

The catch: no earned income, no contribution. Young kids without jobs can't use this one — unless the family business legitimately employs them (real work, reasonable pay, proper payroll records).

Example: 16-year-old Maya earns $6,000 at a summer job. Her parents open a custodial Roth IRA and contribute $6,000. That money grows tax-free for 40+ years, and qualified withdrawals in retirement are tax-free.

Option 3: 529 plan

The education savings workhorse.

How it works:

• No income limits, no earned-income requirement. Anyone can contribute; limits are high (set by each state, often $500,000+ lifetime).
• Withdrawals for qualified education expenses — college, K-12 tuition (up to $10,000/year), apprenticeships, even student loan repayment (up to $10,000 lifetime) — are tax-free.
• Didn't use it all? Change the beneficiary to a sibling, yourself, or another family member. Or use the SECURE 2.0 escape hatch below.

The 529-to-Roth escape hatch (SECURE 2.0): Unused 529 money can be rolled into the beneficiary's Roth IRA — up to $35,000 lifetime — tax-free and penalty-free, if:

• The 529 has been open at least 15 years
• The money being moved has been in the account at least 5 years
• The beneficiary has earned income at least equal to the rollover amount that year
• The rollover counts toward the annual Roth IRA limit ($7,500 for 2026)
• It's a direct trustee-to-trustee transfer, into a Roth IRA in the beneficiary's name

Note: this rollover is not subject to the usual Roth IRA income limits — high-earning families can use it too.

Example: The Patels saved $80,000 in a 529, but their daughter earned a full scholarship. They change the beneficiary to their younger son for college — and years later, roll the remaining $35,000 into his Roth IRA.

Side-by-side comparison

	Trump Account	Custodial Roth IRA	529 Plan
Who can open	Parent/guardian for a child under 18	Parent as custodian for a child with earned income	Anyone
2026 contribution limit	$5,000/yr per child	$7,500/yr (or earned income, if less)	Very high (state-set)
Earned income required?	No	Yes	No
Tax on contributions	After-tax (no deduction)	After-tax (no deduction)	After-tax (no federal deduction)
Tax on qualified withdrawals	Taxed as ordinary income	Tax-free	Tax-free (education)
Withdraw before 18/59½	Locked until 18; 10% penalty before 59½	Contributions anytime; earnings 10% penalty before 59½	Earnings taxed + 10% penalty if non-qualified
Free government money	$1,000 (2025–2028 births only)	None	None
Best for	2025–2028 babies getting the $1,000	Kids with jobs; decades of tax-free growth	Education savings with flexibility

Three questions to decide

1. Was your child born 2025–2028? If yes, open the Trump Account and claim the free $1,000. If no, skip to question 2.
2. Does your child have earned income? If yes, fund a custodial Roth IRA first — it's the best tax deal available.
3. Is the money for education? If yes, a 529 gives you tax-free withdrawals plus the beneficiary-change and Roth-rollover escape hatches.

Many families will end up using two: a 529 for education, plus a custodial Roth IRA once the teen starts working.

One open question to watch

As of October 2026, the Department of Education hasn't said how Trump Accounts count for FAFSA financial aid — as a student asset (assessed at 20%) or excluded like a retirement account. If your child is college-bound in the next few years, this matters. Worth checking before you contribute large amounts.

Sources

• One Big Beautiful Bill Act (P.L. 119-21), new IRC §530A — Trump Account statute
• IRS Notice 2025-68 — Trump Account pilot program guidance
• IRS Notice 2025-67 — 2026 IRA contribution limit ($7,500)
• IRS Form 4547 — Trump Account election
• SECURE 2.0 Act §126 — 529-to-Roth IRA rollover rules ($35,000 lifetime, 15-year/5-year requirements)
• IRS Publication 590-A — IRA contribution and withdrawal rules

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This article is for education only — not tax or financial advice. Tax rules change; check with a tax professional for your situation.