Trump Accounts went live this week, and a lot of (grand)parents are asking whether they should bother with them, especially if they’re already using 529s for college. Here’s the short version: if your (grand)child qualifies for the $1,000 federal “starter” deposit, it’s 100% worth taking. Beyond that, most families will still want 529s to do the heavy lifting for education.
Trump Accounts are new tax‑advantaged investment accounts opened in a child’s name, with a parent or guardian as custodian until adulthood (Jan 1st of the year they’ll turn 18). The federal government will put in a one‑time $1,000 contribution for eligible kids (born between 1/1/2025-12/31/2028), and you can add more over time within annual limits. The contribution limits are $5,000/year/child, separate from the initial $1,000 government seed funds. The money is invested in a fairly simple lineup of broadly diversified, low‑cost funds, and it grows tax‑deferred. It’s built more like a retirement account for your child’s future than a college account for the next decade.
To open one, parents will use the IRS’s online system, verify their identity, and follow the prompts to set up a Trump Account for their child and claim the $1,000 if they’re eligible. You can also find information, links to IRS webpage, and updates at www.trumpaccounts.gov. Once it’s open, you’ll be able to see the balance, choose investments from the available options, and decide whether to make additional contributions.
One timing wrinkle: even though you can start the election process now, no one can add money to Trump Accounts until after July 4, 2026. The $1,000 government seed for eligible kids also won’t hit the account until after that date. Think of this as the setup phase, with actual funding and balances showing up later in 2026.
For families already saving in 529 plans, the natural question is how this fits together. 529s are still the go‑to tool for education. In Michigan, contributions to the state’s 529 plans can reduce your Michigan taxable income, and when the money is used for qualified education expenses, the growth comes out tax‑free. Trump Accounts don’t work that way. They’re treated more like traditional IRAs. The money grows tax‑deferred, but when the child eventually takes it out, the taxable portion is ordinary income, even if it’s used for college. The only real break is that, under the normal IRA rules, certain uses—like qualified higher‑education expenses or a first‑time home purchase—can waive the 10% early‑withdrawal penalty, but they do not make the withdrawal tax‑free. That’s a very different benefit than what you get from a 529.
Some readers’ gears may be turning here, so let me clarify. They’re not a way to create a special pre‑tax IRA for your child or to get a big new deduction. When you put money in, you’re using after‑tax dollars and you don’t get a federal or Michigan tax break for the contribution. Those contributions do create cost basis in the account, so that part can eventually come back out tax‑free, but all of the growth and the $1,000 government seed are taxable to your child when they withdraw the money as an adult, even if it’s used for education. For most families, the Trump Account is best thought of as a one‑time $1,000 boost plus an optional extra long‑term savings bucket, while the 529 remains the primary tax‑advantaged tool for college.
There is, however, an interesting long‑term planning angle. Because Trump Accounts are treated like traditional IRAs, there is a path for the child, once they’re an adult, to convert some or all of the balance to a Roth IRA in a lower‑income year. That could mean: take the $1,000 seed and any extra contributions, let them grow, then in the child’s early working years (when their tax rate is likely lower), convert portions to a Roth and lock in tax‑free growth going forward. It’s not something that needs to be decided now, but it’s a nice option to keep on the table for later.
So what should you actually do? If your child is eligible for the $1,000, opening a Trump Account and taking the free money is a no-brainer. It doesn’t stop you from contributing to 529s or using other savings strategies, and it creates an extra long‑term bucket for your child’s future. For most families, though, it will still make sense to keep 529s as the main vehicle for college funding and treat Trump Accounts as a complementary piece—especially useful if you like the idea of giving your child a head start on retirement or other long‑term goals without changing what you’re already doing for education.
Disclosures
This material has been prepared for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. This material is not intended to provide, and should not be relied on for tax, legal, investment, accounting, or other financial advice. You should consult your own tax, legal, financial, and accounting advisors before engaging in any transaction. Asset allocation and diversification do not guarantee a profit or protect against a loss. All references to potential future developments or outcomes are strictly the views and opinions of Richard W. Paul & Associates and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in various economies and investment markets. Past performance is not necessarily indicative of future performance.