Trump Accounts: what you need to know, and how they compare to a 529 or UTMA

A new way to save for your children has arrived. Here is how the Trump Account works, and how it sits alongside a 529 and a UTMA.

Most parents share the same quiet hope. You want to give your children a head start, a bit of money behind them for college, a first home, or simply a smoother beginning as adults. What stops many people is not a lack of will but a lack of clarity. There are several ways to save for a child in the United States, they all sound reasonable, and it is hard to know which one actually fits your family.

With the arrival of the new Trump Account, there is one more option to weigh. Is more better? Parents now have three main ways to save for a child: the UTMA, the 529, and the aforementioned Trump Account. Many are left wondering which is best for them, or even what the newest one actually is. The reassuring news is that none of them is simply “the best.” Each is built for a slightly different job, and once you know what you want the money to do, the right choice tends to become clear.

This guide explains each one in plain language and lays out the trade-offs, so you can decide with confidence.

Start with four questions

Before comparing accounts, it helps to be honest about what matters most to you. Four questions do most of the heavy lifting:

• How flexible does the money need to be? Are you happy for it to be tied to a specific purpose, or do you want to be able to use it for anything?
• Is this mainly for school? College and school costs change the math considerably.
• Are you comfortable handing your child full control in their late teens? Some accounts give the child the keys at 18 or 21, whether you like it or not.
• How much do you want to contribute, and who else might chip in? Grandparents, and in one case even an employer, can play a part.

Keep your answers in the back of your mind as you read on.

The Trump Account

The Trump Account, technically a Section 530A account, is the newcomer, created under the 2025 tax law. In practice it is a traditional IRA opened in your child’s name, with you as custodian, and money can start going in from July 2026. For now, accounts are opened through Robinhood, with other major brokers expected to follow.

Its standout feature is free money. For a child who is a US citizen born between January 2025 and December 2028, the federal government puts in a one-time $1,000 to get things started. No other account on this list hands you cash simply for opening it.

The pros

• The $1,000 government seed is well worth claiming, even if you never add another dollar.
• Money grows tax-deferred, and it can start compounding from birth.
• You can contribute up to $5,000 a year (in 2026, rising with inflation after 2027), and there is no requirement for the child to have earned income, which is unusual for a retirement account.
• An employer can add up to $2,500 a year tax-free, within that $5,000 limit. If a workplace offers it, that is a rare perk.

The cons

• It is built for retirement. Because it is a traditional IRA, the growth is taxed as ordinary income when it comes out, and withdrawals before age 59 and a half usually carry a 10% penalty unless an exception applies.
• School is only a partial escape. Qualified education costs avoid the penalty, but the growth is still taxed, so it is a weaker choice than a 529 for college.
• The money is locked away for years, and while your child is young the investments are restricted to low-cost index funds that track the US stock market. At launch the default is an S&P 500 fund, with only a handful of similar broad US index funds permitted, so you cannot pick your own strategy. More options may be added over time, but for now the choice is deliberately narrow.
• There is a limit of one account per child, and the child needs a Social Security number.

What the head start alone could grow into

It is worth pausing on that $1,000, because the real story is what it can become if you simply leave it alone. Assuming a long-run return of around 7% a year, used here only to illustrate rather than as a promise, the government’s $1,000 could grow to roughly $3,400 by the time your child turns 18, a useful hand toward school costs. Left untouched instead, that same $1,000 could reach somewhere in the region of $58,000 by the time your child reaches retirement age. Nothing added, just decades of compounding from a single deposit made at birth. The trade-off, as ever, is that this growth is taxed as ordinary income when it is eventually withdrawn.

In short, the Trump Account is strongest as a long-term, tax-deferred head start, and the free $1,000 makes it hard to ignore. It is weakest when you need the money sooner or want it to be tax-free for education.

The 529 plan

The 529 plan is the long-established favorite for education, and for good reason. You put money in, it grows, and as long as it is spent on qualifying education costs, the growth comes out completely free of federal tax.

The pros

• Qualified education withdrawals are federally tax-free, which is the single biggest advantage for college saving.
• Many states offer a state income tax deduction or credit for what you contribute.
• It covers more than college. In 2026 you can withdraw up to $20,000 a year for K-12 costs, and 529s can also cover apprenticeships and up to $10,000 in student loan repayments.
• The limits are generous. There is no fixed annual cap, though contributions count as gifts, so most families stay within the $19,000 per person annual gift exclusion for 2026, or use the rule that lets you front-load five years at once, up to $95,000 from one person.
• It is flexible in useful ways. You can change the beneficiary to another family member, and leftover funds can be rolled into the child’s Roth IRA, up to a $35,000 lifetime limit, provided the account has been open at least 15 years.
• It is treated kindly by college financial aid formulas, counting as a parent asset rather than the child’s.

The cons

• The tax break is tied to education. If you take money out for something else, the growth is taxed and hit with a 10% penalty.
• Investment choices are limited to the menu your chosen state plan offers, rather than anything you like.

In short, if the goal is education, the 529 is usually the account to beat.

The UTMA (custodial account)

A UTMA, or custodial account, is the most flexible of the three. It is simply an investment account you open and manage on your child’s behalf, and it can hold almost any investment and be used for almost any purpose that benefits the child.

The pros

• Total flexibility. The money can go toward a car, a wedding, a first business, education, anything, with no penalties for how it is used.
• No contribution limit, and you can invest in whatever you choose.
• It is simple to set up and understand.

The cons

• There is no real tax shelter. The account’s dividends, interest, and any gains you actually sell are taxed as they arise each year, whether or not you take the money out, under the “kiddie tax” rules. In 2026 the first $1,350 of a child’s investment income is tax-free, the next $1,350 is taxed at the child’s rate, and anything above $2,700 is taxed at your rate. You can defer tax on growth you have not yet sold, but not on the income the investments throw off along the way.
• You lose control. The account legally becomes the child’s at the age of majority, which is 18 in some states and up to 21 or older in others. From that point they can spend it on whatever they wish.
• It is an irrevocable gift. Once the money is in, it belongs to the child and cannot be taken back.
• It carries the heaviest college financial aid impact, because it counts as the student’s own asset.

In short, the UTMA buys you freedom, at the cost of tax efficiency and control.

So, which should you choose?

The honest answer is that it depends on those four questions, but a few patterns hold true for most families.

If the money is specifically for college, the 529 usually leads, thanks to tax-free growth for education, possible state tax breaks, and gentle treatment by financial aid.

If you want a low-effort head start and long-term growth, and you are comfortable with the money being aimed at retirement, the Trump Account earns its place, if only to claim the free $1,000.

If flexibility and freedom matter most, and the money might be for anything at all, the UTMA fits, as long as you accept the yearly tax and the fact that your child takes control in their late teens.

This is also rarely an either-or decision. Because the Trump Account comes with a free $1,000, it makes sense to open one for an eligible child even if you do nothing more than claim that head start. From there, the real questions begin. Is a 529 or a UTMA the better home for the rest of your saving, given what you want the money to do? And do you want to add to the Trump Account itself, treating it as an early start on your child’s own retirement? There is no single right answer, and for many families the sensible path uses more than one of these accounts side by side.

If your family has ties to the UK

There is less to worry about here than you might expect. Both Trump Accounts and 529 plans can often be used at eligible universities abroad, including many in the UK, so planning for a possible return home does not have to rule them out. The one sensible step is to confirm that the particular university qualifies before you count on it, especially if a UK degree is the goal. And if your family has tax ties on both sides of the Atlantic, a short conversation can make sure the pieces fit neatly together.

Choosing how to save for your children is one of those decisions that feels bigger than it needs to. Break it down by what you actually want the money to do, and the path usually becomes clear. The $1,000 costs nothing to claim for an eligible child, so the more meaningful decision is usually what, if anything, to do after that.

If you would like help weighing the options for your own family, we are always happy to talk it through.