Trump Accounts vs. 529s, custodial accounts, Roth IRAs

Starting on July 4, Trump Accounts will offer parents a new option to save and invest for their children’s future. It joins the ranks of other types of investment accounts you can already open on behalf of a minor.

Rather than consider a Trump Account, also known as a 530A account, as the “one kids’ account to rule them all,” they are “a tool in the savings toolbox with a specific purpose,” said Ben Henry-Moreland, a certified financial planner with advisor platform Kitces.com.

For example, families could also consider a 529 college savings plan, a custodial account for minors under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act, also known as UGMA and UTMA, or, once a child earns income, a Roth individual retirement account.

Each option has different benefits and drawbacks depending on your long-term plan, experts say. Here’s a breakdown of the rules and restrictions for these accounts:

Employers can also contribute up to $2,500 per worker, per year, which is part of the $5,000 limit and won’t count as taxable income, according to the IRS. Additionally, qualifying charitable organizations and state and local governments may make contributions that do not count toward the $5,000 limit.

Roth IRAs:

The Roth IRA contribution limit is up to $7,500 for 2026, but children can’t deposit more than their earned income for the year.

529 plans:

Alternatively, 529s have much higher annual contribution limits: Parents and other individuals can each gift up to $19,000, or up to $38,000 if you’re married and file taxes jointly, per child, without those contributions counting toward the lifetime gift tax exemption.

Families can also “superfund” 529 accounts, which allows front-loading five years’ worth of tax-free gifts into a 529 plan. In this case, an individual could contribute up to $95,000, or $190,000 for a married couple. But then you wouldn’t be able to give more money to that same recipient within a five-year period without it counting against your lifetime gift tax exemption.

Custodial accounts:

Brokerage accounts for minors have no annual contribution limits, although gifts over $19,000 per year or $38,000 for married couples may also trigger federal gift tax reporting.

Depending on the different kinds of contributions, withdrawals may contain a mix of taxable and nontaxable money. Withdrawn earnings are taxed as ordinary income, according to guidance from the U.S. Treasury Department.

Children saving in a Trump Account may be able to do a Roth IRA conversion to reduce the tax bite in future years.

Roth IRAs:

Roth IRAs are considered “tax efficient” because they’re funded with after-tax dollars, offer tax-free growth on investments and withdrawals in retirement are generally tax-free. There is also no requirement to take required minimum distributions, or RMDs, in retirement.

529 plans:

In most cases, 529s are the most tax advantageous of the bunch, according to experts.

In more than half of all U.S. states, you can get a tax deduction or credit for contributions. Earnings grow on a tax-advantaged basis, and when you withdraw the money, it is tax-free if the funds are used for a qualified education expense. Otherwise, any earnings you take out may be subject to taxes and a 10% penalty.

Custodial accounts:

Custodial accounts are taxable accounts — meaning, they don’t carry tax advantages like the others — so investment income like interest and dividends is taxed annually.

Tax rates on that income will vary based on a few factors. For example, short-term capital gains tax rates apply to profits on investments sold after a year or less of ownership. These profits are taxed as ordinary income. Conversely, long-term capital gains are generally taxed at a lower rate; these apply to investments sold after a year.

Parents should keep “kiddie tax” rules in mind. These rules apply to kids who are younger than 18 years old, or many full-time students under age 24. Generally, the child’s unearned income — such as taxable interest, dividends and capital gains — over $2,700 is taxed at the parent’s marginal income tax rate.

Trump Accounts will be invested in “broad U.S. equity index funds,” such as mutual or exchange-traded funds. So, the money in a Trump Account is restricted to stocks only, rather than a mix also including bonds or other assets. However, the exact investment options have not yet been announced.

Roth IRAs, custodial accounts:

Roth IRAs and custodial accounts function like regular brokerage accounts, and the funds can be invested in various assets, including cash, stocks, bonds and mutual funds.

529 plans:

Contributions to 529 plans generally are invested in age-based portfolios that contain a mix of stocks, bonds and cash-like investments. Often, that mix becomes more conservative as your child nears college.

With a Trump Account, it’s not possible to withdraw funds before age 18, with very limited exceptions, according to the IRS.

At age 18, the standard rules for traditional IRAs apply. Withdrawals before age 59½ are generally subject to income taxes and a 10% penalty. There are certain penalty exceptions, such as for distributions for higher education expenses or the purchase of a first home.

“It’s really important for parents and their kids to have a plan,” Henry-Moreland said, “especially since, once they turn 18, most kids will have the ability to do whatever they want with their Trump Account, up to and including liquidating it entirely.”

Roth IRAs:

With a Roth IRA, contributions can be withdrawn at any time without taxes or penalties. Generally, earnings can be withdrawn after age 59½ without taxes or penalties — and there are certain exceptions to the 10% penalty on earnings withdrawals before that age.

The parent manages the account and investments until their child reaches the age of majority, which is typically 18, but could be 21 in certain states.

529 plans:

Even before a child turns 18, funds in a 529 plan can be tapped to cover qualified education expenses, such as vocational programs and apprenticeships, tuition for your child’s K-12 private school and expenses related to K-12 education such as tutoring, standardized test prep and educational therapy. 

Any funds not used for education expenses can remain with the account owner, be transferred to another beneficiary or be rolled into a Roth individual retirement account for the beneficiary, free of income tax or tax penalties.

Custodial accounts:

Similarly, with a custodial account, control transfers to the beneficiary when the child turns 18 or older, depending on the state.

Trump Accounts are best for longer-term savings, financial experts say, since they mostly function like an individual retirement account. With seed money and the ability to start at a younger age, funds have more time to grow, leveraging the power of compounding.

“They generally should be thought of as retirement accounts first, and not for other purposes,” Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis, told CNBC.

If left alone, TrumpAccounts.gov projections show, accounts could grow to $15,000 by age 27 or $243,000 by age 55, assuming the initial $1,000 Treasury deposit and no further contributions. However, those estimates are based on the S&P 500 historical annual average return of over 10%, which some advisors say is “unduly optimistic.”

Trump Accounts “can shine” relative to other financial accounts if the child converts it to a Roth IRA early on — perhaps in their mid-20s, to avoid kiddie-tax rules — and holds it until older age, Levine said.

Roth IRA:

With a Roth IRA, account holders have the added benefit of being able to withdraw their contributions at any time without taxes or penalties if, for example, they need the money for a down payment on a house or other major expense down the road.

In this sense, financial advisors say such an account can function as a quasi-emergency fund, too.

529 plans:

When broken down by various long-term goals, “a 529 is a clear winner for paying for college,” Michalka said. Starting from birth, the higher contribution limits and tax advantages set this savings vehicle apart, he said.

Custodial accounts:

Ultimately, if a child plans to use money in before age 59½ — when a 10% income-tax penalty would generally apply in a Trump account or a Roth IRA — a UTMA “is almost certainly going to be a far better option” in terms of generating after-tax wealth, Levine said.

That’s because custodial accounts have the benefit of flexibility.

“You can put money in anytime and take money out anytime,” Michalka said. That also means you can spend the money for the benefit of the child before age 18 on other big-ticket items such as a first car or summer camp, he said. Remember that kiddie-tax rules may apply.

“Keep in mind what your goals are and what the timeline of those goals are,” Michalka said.

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