CFP says there are ‘tax-advantaged’ alternatives to Trump account

Starting in July, Trump Accounts will offer parents new options to save and invest for their children’s futures. However, other tax-advantaged savings and investment vehicles already exist and are often underutilized.

For example, a recent report from financial services firm Edward Jones found that only about 23% of parents currently use a 529 college savings plan.

Andy Esser, an Edward Jones advisor and certified financial planner, says saving for your child’s education is a top financial priority, but “it’s still not a top priority.”

Still, for families considering savings options ahead of opening a Trump account on July 4, “529s are a good alternative, if not one of the better options, because of the tax benefits,” Esser said.

Savings in a 529 plan grow tax-free, and withdrawals for qualified expenses are also tax-free. Additionally, you may receive a state tax deduction or deduction for your donations.

Contributions to a 529 plan are typically invested in mutual funds that combine stocks, bonds, and cash-like investments. Often, as the child gets older, the combination becomes more conservative.

Provisions in the One Big Beautiful Bill that President Donald Trump signed last year also increase eligible expenses for using funds from 529 plans.

The funds can now be used for two- and four-year colleges and graduate schools, as well as vocational training, certificate programs, and apprenticeships.

Additionally, under the new tax law, you can pay up to $20,000 a year for your child’s K-12 private school tuition and expenses related to K-12 education, such as tutoring, standardized test preparation, and educational therapy.

The remaining money in your 529 plan can be used to pay off student loans, or up to $35,000 can be rolled over into a Roth Individual Retirement Account without income taxes or tax penalties.

For these reasons, “the 529 is a very powerful tool,” Esser said.

You can also transfer or withdraw funds to another beneficiary to pay taxes and income penalties, even if your child does not pursue further education.

“Over the past few years, the expanded use of 529 plans has continued to transform accounts beyond just ‘college-only’ accounts,” said Thomas Psaltis, director of education savings programs at Bank of America and Merrill.

“In essence, 529 plans are one of the most tax-advantaged ways for families to finance future education costs and reduce the burden on the next generation as tuition costs continue to rise,” he said.

Earlier this year, Reps. Tom Barrett (R-Mich.), Rep. Tracy Mann (R-Kansas), Rep. Mark Alford (R-Missouri), and Lou Correa (D-Calif.) introduced the First-Time Home Buyer Empowerment Act, which would allow account holders to use unused college savings to make a down payment on a home.

“Too many families simply cannot afford housing that is good for them,” Barrett said in a statement. “An easy first step to changing that reality is allowing homebuyers to tap into unused college savings in their 529 accounts and put them towards their first home purchase.”

The bill is pending review by the House Ways and Means Committee.

Despite their wide range of benefits, research shows that participation in 529 plans is skewed toward higher-income households.

Wealth inequality is one of the things the new Trump account, also known as the 530A account, wants to address, the administration said.

To maximize participation, tax-free Trump Accounts opened for babies born between 2025 and 2028 will receive an initial deposit of $1,000 from the U.S. Treasury.

Children age 10 and under and born before January 1, 2025 (not eligible for the $1,000 contribution) can receive $250 in their account if they live in a zip code with a median income of $150,000 or less. That’s courtesy of a $6.25 billion pledge from tech CEO Michael Dell and his wife Susan.

“Our view is that providing meaningful starting assets for all eligible children is a transformative step, and even recognizing that families differ in their ability to contribute is important,” Dell said in a recent interview with Time magazine.

Other philanthropists in certain states have also pledged to fund accounts for eligible families, and many employers have pledged to match every $1,000 Treasury deposit in the account.

However, in the case of the Trump account, all funds are invested only in U.S. stock funds, no bonds are used to reduce risk, and with very limited exceptions, funds in the Trump account cannot be withdrawn by anyone under the age of 18, the IRS says.

Once you turn 18, the standard rules for a traditional IRA apply. Withdrawals made before age 59½ are typically subject to income tax and a 10% penalty. There are exceptions to certain penalties, such as the distribution of higher education costs and the purchase of a first home.

While some financial advisers say Mr. Trump’s accounts may not offer the best tax benefits, many still encourage family members to open accounts and receive “free money” from the Treasury, employers and other sources if they qualify.

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