Before the first account has been opened, Trump accounts are already questionable in terms of how useful they will be. I wrote last week about what we know so far about the new Trump Accounts and how they work. It will be interesting as we learn more about these accounts in the coming months, whether they could replace other “kid accounts” that exist today. Namely, where do Trump Accounts rank amongst 529 accounts, UTMA accounts, and others? Rules could change as the year goes along, but as of now, there are some specific differences between these accounts that are worthy of note.
Key Takeaways
- Education savings decisions hinge on contribution limits, tax treatment during growth, and withdrawal rules. UTMA, 529, and Trump Accounts differ at each of those stages.
- Contribution flexibility varies: Trump Accounts cap annual deposits, UTMAs allow larger gifting, and 529 plans may offer state tax benefits.
- 529s and Trump Accounts grow tax-free, while UTMAs could trigger annual taxes.
- Control and taxation at withdrawal can drive outcomes. UTMAs shift control to the child, 529s retain parental control, and Trump Accounts follow IRA-style tax rules.
Comparisons
For every dollar in an education savings account (or really any savings account), there are three main stages to analysis. First is the contribution stage, followed by the growth stage, and finally the withdrawal stage. Depending on the specific account, there are different rules and tax implications at each stage. The goal of understanding which account is best, I would argue, must consider each stage of the account and determine what is best for their situation.
| Contribution Stage | Growth Stage | Withdrawal Stage | |
| UTMA | After-tax gift to the child.Usually less than Annual Gift Exclusion ($19,000 in 2026) | Interest, Dividends, and Capital Gains are taxable. | Tax-free (but may have unrealized capital gains that cause taxes when sold) |
| 529 | After-tax gifts, some pre-tax in certain states.Usually less than Annual Gift Exclusion ($19,000 in 2026). | Grows tax-free | After-tax contributions returned tax-free.Earnings are tax-free if used for education. 10% penalty may apply if used for other expenses. |
| Trump Account | Mostly after-tax contributions, $5,000 limit.$2,500 pre-tax contributions allowed through an employer. | Grows tax-free | After-tax contributions returned tax-free.Earnings taxed at the child’s ordinary income rates if used for education or a home. 10% penalty may apply if used for other expenses. |
Contribution Stage
The first step towards any savings goal is to contribute funds to the savings account, naturally. Some accounts, like a Trump Account, have contribution limits each year. Others, like the Uniform Transfers to Minors Act (UTMA) account, do not have contribution limits but are instead considered gifts to the child. How much someone wants to save can dictate which accounts to fund. For example, Trump Accounts cannot have more than $5,000 per year in contributions (from anyone), so if your goal is to save more than that, you need at least another account besides the Trump Account.
Tax consequences are also important to consider. Most Trump Account contributions may be after-tax contributions, meaning the money you put into the account is not tax-deductible. This is different than some states’ 529 plans (excluding Kentucky), where you can get a tax deduction for 529 contributions. As of this writing, Kentucky does not offer tax deductions for UTMA or 529 contributions, so, from a certain perspective, all three accounts are a wash for tax purposes on contributions. Trump Accounts (and even some 529 plans) could get a leg up if an employer is willing to contribute to the Trump Accounts. Capped at $2,500 per year, these contributions could potentially be tax-deductible if made directly by the employer on behalf of the employee.
Growth Stage
Once funds are inside the savings account, the investment options and tax consequences of those investments become important. Since UTMA accounts are essentially brokerage accounts for the kids, their investment options are generally much broader than 529s or Trump Accounts. 529s generally only have a few mutual funds available to choose from. Trump Accounts, according to Fidelity, must be invested in low-cost index funds that are meant to track the broader American economy.
From the tax side, both 529 and Trump Accounts provide tax-free growth from year-to-year. Similar to how someone would not pay taxes on a 401k or IRA each year (assuming they didn’t withdraw anything). Both the 529 and the Trump Account can be invested, compound and not increase the tax bill. UTMA accounts are different, since they are gifts to the kid. The interest, dividends, and capital gains inside UTMA accounts are potentially taxable each year as the account grows. While that sounds like a flaw compared to the other accounts, the many other factors of your and your child’s tax situation could mean that even though those accounts are potentially taxable, the deductions may be high enough that there are no taxes owed anyway. Work with your accountant to apply this to your specific situation.
Withdrawal Stage
The final stage, and perhaps the most important, is the most efficient way to take money out of the account. Efficiency likely means the most tax-efficient and operationally efficient way to pay expenses. UTMA accounts are interesting because at the age of majority (usually 18, but it is state-specific), the account is technically converted into a normal brokerage account managed by the 18-year-old. If the child empties the account to go on vacation instead of school, they have the freedom to do that. These accounts are generally created for parents who want a savings account for the child that does not have to be spent on education, but doing so creates a slight risk that the child can choose what to spend the money on.
Since UTMA accounts are taxable each year, there are generally no tax consequences to withdrawing funds from the account. Only if there are remaining capital gains that have not been realized could there be a taxable event when distributing the funds. Even still, the long-term capital gains rate is 0% in 2026 until the 18-year-old reached $49,450 in income that year.
Unlike UTMAs, 529 account ownership remains with the parent and offers tax-free withdrawals if used for high school or college expenses, with certain rules. For withdrawals that do not qualify, 529 accounts have a 10% federal penalty plus income tax on the earnings of the account. Since these accounts are still owned by the parent, any potential taxes or penalties would apply to the parent’s tax situation, not the 18-year-old.
Trump Account withdrawals are the newest wrinkle to the education savings game. The government claims young adults can “continue letting it grow, or they can withdraw funds right away to use for things like education or a home, with all the tax advantages of a traditional IRA”. This means withdrawals of earnings would be taxed at federal ordinary income tax rates, specifically at the child’s tax rates. There is a 10% penalty for any withdrawals from an IRA before age 59 ½, unless they meet certain exclusion rules. Two of those exclusions are for things like education or a home.
Better, Worse, or the Same?
Trump Accounts offer a unique savings strategy compared to 529 or UTMA accounts. When comparing any accounts, it is important to understand the rules when contributing to the accounts, when they are growing inside the account, and when distributions occur out of the account. Trump Accounts have decently different rules within each stage, which leaves the door open for some people to use Trump Accounts as a better savings vehicle. At the end of the day, the goal is to save for our children while minimizing taxes and maximizing their education experience.
TC Falkner 