Are the proposed “Trump Accounts” superior to 529 college savings plans?
The “big beautiful tax bill” has been all of the buzz lately. One overlooked piece is the inclusion of “Trump Accounts” for kids. These proposed accounts were previously dubbed as a “Money Account for Growth and Advancement” or “MAGA Account” as a new savings account for children that may rival the 529. Here’s what you need to know:
- Details on “Trump Accounts”[1]
- Comes with a $1,000 deposit from the Federal Government
- Inclusive for all children born between Jan 1, 2025 – Dec 31, 2028
- Tax treatment: Earnings grow tax-deferred and qualified withdrawals are taxed at the long-term capital-gains rate
- Parents can also contribute to the account at up to $5,000 per year
- Uses include paying for college, buying a home or starting a business
- How does this compare with a 529 college savings plan
- Tax treatment: 529s still offer the most advantageous tax treatment as earnings in a 529 grow tax deferred and come out tax free when used for qualified education expenses. This compares with capital gains rates on earning in the proposed “Trump Accounts”
- Contribution amounts: 529 contribution limits vary by state but can range as high as $550,000 per beneficiary, with contributions of up to $95,000 in one tax year without triggering a federal gift tax[2]. “Trump Accounts” annual limits are substantially lower at $5,000 annually
- Uses: As 529s are targeted towards college funding, distributions on the earnings portion of the account are subject to taxation and a 10% penalty if the funds are not utilized for qualified education expenses. The proposed “Trump Accounts” on the other hand have more flexibility where it appears they can be used towards funding for buying a home or starting a business in addition to funding college.
How should we be thinking about these accounts? Keep them on the radar. These “Trump Accounts” were proposed in the recent tax bill that passed through the house of representatives, but it is likely to go through significant changes while it is reviewed by the senate. In addition, while there is the advantage of flexibility in “Trump Accounts”, 529 college savings plans still offer the largest tax incentives when saving for college.
Have questions about college funding for your child? Feel free to reach out to discuss your situation.
All the best,
Andrew Holmes, Certified College Planning Specialist™
Andrew@PlanWithFPS.com
617-630-4978
Check out my recent whitepaper: 5 College Planning Mistakes to Avoid
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[2] https://www.fidelity.com/learning-center/smart-money/529-contribution-limits