Trump Account vs. 529 Plan
Knoxville Financial Q&A Episode 7 | Trump Account vs. 529 Plan
June 15, 2026
Should you open a Trump Account or a 529 plan for your child? Although both accounts can be used to help provide a financial head start, they were created for different purposes and have different rules.
In Episode 7 of the Knoxville Financial Q&A Show, Paul Ragone and Brian compare Trump Accounts with 529 education savings plans and discuss how parents and grandparents might think about the two options.
The conversation covers eligibility and contributions to Trump Accounts, the government contribution available for certain eligible children, and how these accounts may eventually fit into a child's longer-term financial future. Paul and Brian also discuss 529 plans, their tax advantages for qualified education expenses, and changes that may allow some unused 529 assets to eventually be rolled into a Roth IRA for the beneficiary when specific requirements are met.
For families deciding between the two, the first question may be what they're trying to accomplish. A family focused primarily on future education expenses may view a 529 differently from one looking for additional ways to save for a child's financial future beyond college.
And for families with the financial ability to fund both, the decision doesn't necessarily have to be one or the other.
Watch Episode 7 of the Knoxville Financial Q&A Show above for a discussion of Trump Accounts, 529 plans, Roth IRA rollover opportunities, and some of the factors families should consider when saving for a child's future.
Transcript
Good afternoon. I'm your host, Brian Duncan. I'm Paul Ragone.
And welcome to the seventh episode of the Knoxville Financial Q&A. Today we had a really good question from a young couple that was really trying to seek some answers on whether they should get a Trump account or a 529. And we thought that was so good that we wanted to actually talk about it.
Yeah. So, the Trump accounts are basically brand new. The Trump account allows your kid to basically get $1,000 for free if they were born in 2025 through 2028.
Yep. 18 and under can still open an account. They just don't get the thousand bucks.
Correct. They just have to have a valid Social Security number. We can try to avoid political conversation here. I think if you just look at the account name and rule it out, you're possibly doing your child a disservice in the long run.
Sure.
Politics aside, it's a pretty darn good account.
Yeah. So, the key takeaways on the Trump account: there's a $5,000 per year contribution limit, but there is no income restriction. So, whether you make $50,000 a year or $500,000 a year, it doesn't matter. It's a deferred investment vehicle, so basically the guardian doesn't have to pay taxes on it. They get to defer that until the child becomes the age of majority, which I think is 18.Mhm.
And then what's really cool is they have the ability to convert that to a Roth, which is something probably not well known and not yet talked about much. I think that becomes one of the most valuable caveats to the Trump account.
[music] Words on screen:
Quick note here. In general, that might be considered a good time for a Roth conversion. The conversion would be taxed at ordinary income tax rates and many 18 year olds have very little income. Some of the taxable amount may even be sheltered by the standard deduction. The exact tax costs depends on the amount of the conversion and the person's other income for that year. Consult your CPA if you consider this option.
If you don't convert it to a Roth, it's automatically going to convert to a traditional IRA.
Yeah.
So, in a Trump account, the investment selections are kind of limited, but the cool thing is it's capped at a 0.10% fee, which is extremely low.
Right.
So, you can't open a Trump account through me or Brian, right?
It's got to be done online through the IRS. Whenever you file your taxes, your tax preparer should hand you Form 4547.
4547. That's it. So, once you get that form filled out, they have one.
Interesting. I didn't know the form was named after that.
Yeah.
Okay. So, like Brian said, there's a $5,000 contribution limit per year.
That doesn't have to be directly from you. It could be from your parents, anybody. Any family member.
Realistically, I don't even know if it's classified to family members. I think anybody could contribute.
Either way, you're still going to be depositing through your own family members, but if somebody wanted to throw some cash in the pile, you could do that too.
Yeah. So even when it does convert to a traditional IRA, if you don't do the Roth, it's going to be under your kid's name. It won't be under your name.
Yeah. And the cool thing is you don't have to use it for retirement. So you don't have to convert it to a Roth or traditional IRA. They can actually use it and just pay taxes on it. If they wanted to buy their first house or use it to go to school or anything else, they can use it for that as well.
Yeah. And from traditional IRAs, at least the way current laws are written, you can take $10,000 out for a first-time home purchase without a tax penalty.
So, it's a good way to do both. You can use it for retirement and for your purchase.
Yeah. Okay. So that's the Trump account in a nutshell.
Pretty straightforward. And now let's talk about the 529s.
Yeah. So, a 529 is a wonderful vehicle if you know your kid is going to college. I'd say that's probably the caveat. They keep broadening the definitions. I've been doing this so long. When the 529 first started, you couldn't even use it to buy a laptop, and now they've broadened it to be much, much better.
Yeah. And it's getting to the point where it's almost worth doing no matter what at this point. We'll tell you why.
Yeah. One of the caveats here is that college degrees seem to be becoming less important.
Yep.
And now we have AI and some of these degrees are going to be kind of worthless in some ways, and you might have a whole bunch of student debt. Although the University of Tennessee has the most students they've ever had currently.
It's crazy, right?
And so, that's just something to keep in mind. I think college is important for sure, but at some point AI is going to be handling a lot of that workload and trades are going to be significantly more important. You're going to need someone to come over and fix your HVAC system, plumbing, all that kind of stuff. AI is not going to be able to do that.
Although I did see an AI-powered roofing robot thing that was pretty nuts.
Yeah, that was pretty ridiculous.
Really?
Well, I know they have AI lawnmowers too.
Maybe they'll come for trades at some point too. But for right now, no.
[laughter]
Yeah. It's just something that you have to consider if you're going to invest in a 529 plan.
The main benefit is education for sure. You put all this money into it and it comes out tax-free to pay for qualified education.
Yep.
However, in 2024, as we found out, they made some serious changes which allow you to do a Roth conversion on part of it.
Mhm.
Yeah. So let's say your kid doesn't go to college or doesn't use all of the money that's in the 529 plan. Even if they go to college, that money can be converted to a Roth IRA, which is pretty cool.
Very, very cool.
So that just happened in 2024. There's a lifetime conversion limit of $35,000, but you can't convert it all at once.
So you still have to follow the Roth IRA contribution limits. You do it over a period of years.
Yep. Up to $35,000, which is incredible.
Typical rule of thumb would have been to wait until your kid had the ability to work in a business if you owned one. Then you could pay them a wage and contribute that wage to a Roth IRA.
That's crazy because that's what you had to wait on. Now you don't have to.
Right. If you want your kid to have a Roth IRA, the only way to do that before was if your kid had income.
Yeah.
Right. So this is kind of like a loophole where you can contribute to a 529 and eventually convert that money to a Roth IRA.
Is there taxes on that Roth conversion or is it just simply you get to Roth convert?
So no, there are no taxes, but there are some caveats.
First, the 529 plan has to be open for at least 15 years.
Okay.
The last five years of contributions are not eligible to be rolled over. So they either need to be used for qualified education or spent.
Also, the Roth IRA must belong to the 529 beneficiary. So if you name your kid the beneficiary in the 529 plan, the Roth IRA has to be titled under that kid's name as well.
Can't be your Roth IRA if you have one.
Right.
What's cool about the 529 is you can roll it from child to child. Just remember, there's a $35,000 lifetime limit.
Let's say your kid doesn't go to college and you've got $50,000 in your 529 plan. Over time you convert $35,000 to a Roth and have $15,000 left. That $15,000 could also go to another beneficiary.
Right.
The biggest difference between the 529 and the Trump account is that the Trump account has a finite amount. You've got $5,000 per year until age 18, which I think is about $90,000, or $91,000 if you got the extra thousand dollars.
But the 529 doesn't have those same limitations. They have a maximum per beneficiary, which varies by state and can range from roughly $250,000 to over $600,000.
The biggest thing is just deciding what you're trying to accomplish for your child.
I would do both probably, if possible. But that's a lot of money.
If it's pick one, I don't know how you pick one. That's a tough call.
Well, it's client dependent.
Yeah.
If you are dead set on your kids going to college, the 529 plan is the way to go, especially with the Roth conversion provision they recently added. That's a game changer.
But you also get a free thousand in the Trump account. Take advantage of that even if you don't fund it.
Yep.
Even a thousand bucks is all you got.
Yeah. A thousand dollars over 18 years in a low-cost index fund is going to grow.
Make some money, right?
So take advantage of that.
If you're fortunate enough to have a high enough income to start maximizing all available savings vehicles, it would be ideal to max out the Trump account and contribute significantly to the 529.
If you could do both, that would be the ideal scenario.
From the Roth conversion standpoint, you used to need enough earned income to provide that opportunity to your kids. Now you have an avenue to do approximately $90,000 in the Trump account and $35,000 in Roth conversions from the 529.
That's a powerful combination to set your kids up with a hefty Roth IRA balance early in life.
I couldn't imagine what that looks like. With compound interest, that's probably two to two and a half million dollars by the time they're 60 or 65.
So if you're providing them with a cool two to two and a half million, they can essentially coast.
Don't tell them that. They'll spend it all.
[laughter]
But if you could do that for your kid, they could have a nice little job with a 3% matching 401(k), barely contribute, and still be in a significantly better spot than most people.
Definitely.
So, to put this in order: take advantage of the free $1,000 if your kid is born between 2025 and 2028.
Don't leave that sitting on the table.
It's free.
Use your 529 as the main college savings vehicle.
Yep.
And then, if you can, max out the Trump account for your child's future beyond college.
As Brian just mentioned, both the 529 and the Trump account can become significant amounts of money over time.
If you tell them, they're going to use it for a car or a house. So don't tell them.
[laughter]
That's the truth.
To sum this up, our clients asked us which one is better.
They're both good, and you have the ability to fund both.
Yeah.
You don't have to pick one.
If your desire is for your kids to go to college and that's really important to you, I'd probably pick the 529.
But I would not leave that $1,000 sitting out there. Take advantage of it.
So, I hope that clarifies things a little bit.
Yeah, especially with it being so new. It's a totally new phenomenon.
It's a cool little account.
And Brian's going to get to take advantage of that $1,000 here.
Only one of them. One of them will get it. Sorry about your luck.
Yep.
Anyway, with that said, signing off.
Signing off. Have a good one.