Trump Accounts vs. 529 Plans vs. Roth IRAs: Here’s How the Tax Benefits Actually Compare

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President Trump called them “tax-free investment accounts for every American child” during his State of the Union address, and that phrase is promising more than the actual rules deliver. Dianne C. Mehany, a private national tax leader at EY, put it plainly in Fortune’s analysis of the accounts’ tax treatment: “It’s not something that is tax free. And it’s not something that grows tax free like it does for other retirement accounts.”

That difference, between tax-deferred and tax-free, is not a minor detail. Tax-deferred means you pay taxes later; tax-free means you never pay taxes on that money. It is the difference between owing nothing on withdrawal and owing ordinary income tax (taxed at your regular tax rate, not the lower rate for investments) on potentially hundreds of thousands of dollars.

So let’s go through what the rules say and what the $270,000 projection assumes. We’ll also look at how Trump Accounts compare to 529 plans and custodial Roth IRAs across the factors that affect your family’s bottom line.

What Trump Accounts Are (and Are Not)

Trump Accounts were created under the One Big Beautiful Bill Act of 2025. The Treasury Department and IRS issued formal guidance on December 2, 2025, establishing them as a new type of individual retirement account for minors. Any child under 18 with a valid Social Security number can have one opened by a parent, grandparent, or other authorized adult.

The federal government starts each account with a one-time $1,000 contribution, but only for U.S. Citizens born between January 1, 2025, and December 31, 2028. Parents and family members can then contribute up to $5,000 per year until the child turns 18. Employers can chip in up to $2,500 annually on behalf of an employee’s child. That employer contribution does not count as taxable income to the employee, which is a real benefit.

During what Treasury calls the “growth period” (before the child’s 18th birthday), the money must be invested exclusively in mutual funds or ETFs (exchange-traded funds) tracking the S&P 500 or another index of primarily American equities. And the fund’s annual fee cannot exceed 0.1% (one dollar per year on every thousand dollars invested). For context, State Street’s analysis notes that the average stock mutual fund charges 0.40% per year. Index-tracking ETFs carry an asset-weighted average fee of roughly 0.15%, though the figure varies by methodology and year. That makes the cap tight. No withdrawals are permitted during the growth period, for any reason.

On January 1 of the year the child turns 18, the account automatically converts to a traditional IRA (a retirement account where you pay taxes when you take money out). Standard IRA rules then apply. Families can open accounts by filing IRS Form 4547. Contributions cannot be accepted until July 4, 2026, a date chosen to match the 250th anniversary of American independence. As of early 2026, roughly 500,000 Americans had already elected to open accounts in anticipation of that launch.

The Michael and Susan Dell Foundation has pledged $6.25 billion to fund Trump Accounts for 25 million children age 10 and under living in ZIP codes with median incomes below $150,000, according to Treasury’s announcement of the Dell gift. That commitment extends the program’s reach beyond what the federal seed alone would achieve.

The “Tax-Free” Problem, Explained in Dollars

Here is how the tax treatment works, based on Vanguard’s analysis of the proposed rules.

The $1,000 federal seed contribution goes in pre-tax. So do any charitable gifts and employer contributions. That means when those dollars come out, they are taxed as ordinary income at the beneficiary’s rate. The investment earnings inside the account grow tax-deferred (no annual tax on dividends (payments from investments) or capital gains (profits when investments grow)). Those earnings are also taxed as ordinary income when withdrawn, not at the lower tax rates that normally apply to long-term investment profits.

Family contributions made with after-tax dollars are different. Those track which dollars you already paid tax on, so those come out tax-free. Only the earnings on those after-tax contributions face taxation.

The practical consequence: suppose the $1,000 federal contribution grows to $6,000 by age 18. A family withdrawing that $6,000 for a purpose that does not qualify for the penalty waiver owes ordinary income tax on the full amount. A 20-year-old in the 12% federal bracket would owe $720 in federal income taxes on that withdrawal alone, before state taxes. A 529 plan withdrawal for qualified education expenses would owe nothing.

Treasury’s proposed rules do list withdrawal purposes that avoid the 10% early withdrawal penalty. These include higher education expenses, first-time home purchases, birth or adoption expenses, and certain disability or medical situations. But avoiding the penalty is not the same as avoiding the tax. The income tax on earnings still applies in all cases. The administration’s public messaging has not stressed this difference.

The $270,000 Projection: What It Assumes and What It Leaves Out

The $270,000-by-age-18 figure shows up in White House statements, Treasury materials, and media coverage. PolitiFact’s independent analysis found that using more conservative assumptions of 6.7% annual returns and 3% inflation, the same $1,000 initial contribution would be worth only about $7,651 in today’s dollars after 55 years, accounting for inflation and taxes.

The Council of Economic Advisers, with Pierre Yared serving as Acting Chair alongside Kim Ruhl, released analysis of historical S&P 500 returns over rolling 18-year periods from 1975 to the present, though the release could not be fully independently confirmed. Average yearly returns ranged from a low of 5.4% to a high of 18.5%. Under the higher-return assumption, with parents contributing the maximum $5,000 per year for 18 years, the CEA projected account balances between roughly $187,000 and $730,000. A government website projects accounts could reach approximately $271,000 in 18 years, a midpoint figure the SEC brackets within a wider range of $162,000 to $674,000.

When the SEC independently modeled the same scenario using its own investment calculator, projected returns for an 18-year account with $5,000 annual contributions ranged between roughly $162,000 and $674,000, lower than the CEA figures.

The $270,000 figure, in other words, is a best-case outcome. It requires steady maximum contributions over 18 years, a return assumption at the higher end of historical ranges, and the account balance before taxes are taken out at withdrawal. Taxes on withdrawal apply to the earnings portion at ordinary income rates, not the full balance — meaning a family’s actual bill depends on their bracket, state rules, and how much of the balance represents gains. That is still a meaningful sum. But it is not $270,000.

Side-by-Side: Trump Accounts, 529 Plans, and Roth IRAs

The table below compares the three vehicles across the factors that matter most for family financial planning.

Sources: IRS Trump Accounts guidance (Notice 2025-68); IRS 529 plan guidance; Schwab Roth IRA contribution limits; JPMorgan 529 and Trump Account analysis. Proposed rules are subject to change pending final Treasury guidance.

Trump Accounts are the only vehicle on this list where the federal government gives you money upfront, and the only one where your employer can contribute tax-free on your child’s behalf. Those are real advantages. They are also the only vehicle where the word “tax-free” in the official description is, to put it kindly, incomplete.

The Roth Conversion at 18: Tax Strategy and Requirements

One aspect of Trump Accounts stands out to financial advisors: what you can do with them the moment the child turns 18.

On that birthday, the balance automatically becomes a traditional IRA. At that point, the beneficiary can choose to convert the entire balance to a Roth IRA. The conversion is a taxable event: they owe ordinary income tax on the pre-tax contributions and all earnings. But if the 18-year-old has little other income, perhaps in school or working part-time, they may fall in the 10% or 12% federal bracket.

Run the numbers on a concrete example. Suppose a beneficiary turns 18 with a $200,000 balance comprising $1,000 in federal contribution, $90,000 in after-tax family contributions, and $109,000 in investment earnings. Converting to a Roth requires paying tax on the pre-tax portion and all earnings. The $90,000 in after-tax contributions comes out tax-free; the remaining $110,000 is taxable. At a combined federal and state rate of 17% (a reasonable estimate for a young adult with modest income), the tax bill is roughly $18,700. After paying that, the beneficiary has about $181,300 left in a Roth IRA. From there, it grows entirely tax-free for decades. There are no mandatory withdrawals at age 73 (scheduled to increase to age 75 in 2033 for those born in 1960 or later under SECURE 2.0), unlike a traditional IRA, which forces you to start taking money out whether you need it or not.

Consider the alternative: leaving the balance as a traditional IRA. The same $200,000 grows for 47 years, but every dollar withdrawn after 59½ is taxed at whatever rate applies then. That could be 22%, 24%, or higher, depending on retirement income and whatever tax rates look like in 2072. Over that time, the difference between paying 17% now versus 24% later adds up to a large number. Analysis of the age-18 withdrawal rules increasingly points to this conversion opportunity as Trump Accounts’ most appealing feature.

Two requirements apply. The 18-year-old needs to be in a low bracket at conversion time, and the family needs to pay the conversion tax bill from outside funds rather than reducing the converted amount. For families with money to spare, this is doable. Where the 18-year-old may be facing real financial pressure, carrying out the conversion may not be practical.

For Education Goals, 529 Plans Are Still the Right Tool

If a family’s main goal is funding education expenses, the comparison is not close. A 529 plan withdrawal for qualified education expenses produces entirely tax-free withdrawal of both contributions and earnings. Qualified expenses include college tuition, room and board, K-12 tuition up to $20,000 annually, and a range of related costs. The same withdrawal from a Trump Account avoids the 10% penalty but still brings ordinary income tax on any pre-tax contributions and all earnings.

Contribution limits also favor 529 plans for families trying to save as much as possible. Annual deposits can run up to the gift-tax exclusion ($19,000 per donor per beneficiary in 2026). Under a lump-sum rule that lets you front-load five years of contributions at once, a parent can put in $95,000 per donor (or $190,000 for a married couple) without triggering gift tax, as long as they make a timely election with their tax return. Trump Accounts cap contributions at $5,000 per year, shared with any employer contributions.

The SECURE 2.0 Act reforms added a useful exit ramp for families who oversave in a 529: up to $35,000 in unused 529 funds can now be rolled to the beneficiary’s Roth IRA on a tax-free basis. This is subject to annual contribution limits, a 15-year account minimum, and a requirement that the beneficiary have had the 529 open for at least that long. Trump Accounts do not currently offer this bridge; they follow the same transfer rules as any other IRA, which are more restrictive.

Trump Accounts do have one area where they beat 529 plans: flexibility after age 18. A 529 is an education vehicle, full stop, with tax penalties for non-qualified withdrawals. Once a Trump Account converts to a traditional IRA, it can be used for any purpose. Taxes and possibly penalties apply depending on the beneficiary’s age and the withdrawal purpose. For a child who ends up not attending college, that flexibility has real value.

Custodial Roth IRAs: A Flexible Option Worth Considering

A minor with earned income can open a Roth IRA and contribute up to the lesser of their earned income or the annual limit ($7,500 in 2026), according to IRS retirement contribution guidelines. Valid earned income includes wages from a job, self-employment, modeling, and acting. Parents can give the child the money to make the contribution, as long as the child has earned at least that amount from their own work.

Growth inside a Roth IRA is entirely tax-free, and at 59½, all earnings come out the same way. Contributions themselves can be withdrawn anytime without penalty. There is no required lock-up until 18, as with Trump Accounts, and no education-specific requirements, as with 529 plans.

The downside is the earned-income requirement. Not all children have jobs, and contribution room is limited by actual earnings. For families with teenagers earning income, though, a custodial Roth IRA works well alongside either of the other vehicles. The teenager puts job earnings into tax-free retirement savings while parents fund education savings separately. All three vehicles can coexist, and spreading savings across them can reduce taxes across different savings goals and timelines.

Regulatory Uncertainty and Unresolved Questions

Congress enacted Section 529 of the Internal Revenue Code in 1996, providing federal standardization and tax advantages for existing state programs, with nearly 30 years of Treasury guidance and settled practice behind them. Roth IRAs date to 1997 and have a similarly stable foundation. Both have survived multiple administration changes because they are written into law.

Trump Accounts are new. The proposed Treasury rules completed White House Office of Information and Regulatory Affairs review on February 23, 2026—with at least one rule (RIN 1545-BR91) receiving a “Consistent with Change” decision—though certain details remain unsettled. More importantly, the $1,000 federal seed contribution depends on continued congressional funding. A future administration or Congress that chose not to fund the seed program could remove that feature without eliminating the account type itself. The free money could simply stop.

The ASPIRE Act, a prior proposal for universal children’s savings accounts, included explicit language protecting account balances from affecting need-based aid eligibility. It is not yet clear whether Trump Accounts will have the same protection. For lower-income families, this is not a small question.

Families should avoid making large savings commitments based on assumptions about final rules that have not yet been set.

The “Baby Bonds” Research Behind Trump Accounts

The Trump Account concept is not entirely new. The research behind government-seeded children’s savings accounts was laid by economists William Darity Jr. and Darrick Hamilton in a 2010 co-authored paper on “baby bonds” and the racial wealth gap. Hamilton’s concern then, and now, is that $1,000 alone does not build enough wealth to meaningfully change life outcomes for a child born into poverty. He has described Trump Accounts as “addressing wealth inequality on the cheap.” His original proposals called for much larger seed amounts, especially for lower-income children.

The United Kingdom implemented a similar policy with the Child Trust Fund, creating accounts for all children born between 2002 and 2011, with at least £250 seeded at birth. The UK program was eventually discontinued, but a 2012 evaluation found that even modest account balances were associated with improved educational outcomes and financial literacy. The psychological impact of owning something, the sense that there is something there to protect and grow, appears to matter beyond the pure math.

Senator Cory Booker first introduced the American Opportunity Accounts Act in October 2018—reintroducing it in 2019 with Representative Ayanna Pressley—proposing $1,000 accounts for all newborns with graduated additional benefits for children born into lower-income families. That proposal did not pass. Trump Accounts use a different design: universal for 2025-2028 births, seeded at $1,000 for all, with private giving (particularly the Dell family’s $6.25 billion commitment) extending benefits to lower-income children through extra contributions. Whether $1,000 plus compound growth is enough to meaningfully shift wealth paths for families who cannot add more funds remains a real open question.

How to Use Trump Accounts Alongside 529 Plans and Roth IRAs

For a newborn born between 2025 and 2028, claiming the $1,000 federal seed contribution by filing IRS Form 4547 is a reasonable default. The account cannot be accessed until 18, making it a genuinely long-term vehicle. The seed contribution is free money with little downside, unless the family has specific concerns about federal benefit eligibility that are still unresolved.

For college savings, a 529 plan remains the superior vehicle if that is the stated goal. The tax-free growth and withdrawal for education expenses, combined with state tax deductions where available, create a tax benefit that Trump Accounts cannot match for education-specific purposes. Our 529 plan guide covers the state-by-state picture in detail. A family can open both a Trump Account (for the seed and any employer match) and a 529 plan (for ongoing education savings), putting money where it gets the best tax treatment.

If your employer offers Trump Account matching contributions, up to $2,500 per year excluded from your taxable income, that is effectively a pay raise and should generally be accepted. The employer contribution benefit is one of the truly unique features of Trump Accounts. It has no equivalent in 529 plans or Roth IRAs.

For families with teenagers earning income, a custodial Roth IRA is worth serious thought as an addition to whatever else is already in place. It offers no restrictions on use, tax-free growth, and the ability to withdraw contributions anytime. That combination makes it a flexible tool that works well alongside both Trump Accounts and 529 plans.

The one thing families should do before putting large sums into Trump Accounts: understand that the accounts are tax-deferred, not tax-free. Withdrawals of pre-tax contributions and all earnings will face ordinary income tax. Treasury Secretary Scott Bessent has characterized the accounts as “the greatest merger in history between Wall Street and Main Street.” That framing captures something real about the idea that every child, not just wealthy ones, could grow up owning a piece of the stock market. It does not capture the tax bill that comes at withdrawal.

The final rules, which completed OIRA review on February 23, 2026, may answer some of the open questions about financial aid interactions, state tax treatment, and post-18 investment options. Families who have opened accounts based on proposed rules should plan to take another look. The accounts open for contributions on July 4, 2026. That is enough time to understand what you are signing up for.

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