A Comprehensive Look at the 2025 Enhancements to 529 Plans & Trump Accounts
- Transformative Upgrades to 529 Plans
The One Big Beautiful Bill, signed into law on July 4, 2025, brings sweeping improvements to 529 education savings accounts that benefit families at every stage of learning:
Twice the K–12 flexibility: The annual withdrawal cap for K–12 expenses has doubled—from $10,000 to $20,000—making it significantly easier for families to cover private school tuition, books, exam fees, tutoring, and other essential expenses.
Broader eligible expenses: The updated rules expand qualified uses beyond classroom tuition to include vocational training, continuing education, test prep for certifications, dual enrollment programs, and homeschooling supplies and materials.
Permanent ABLE rollovers and credits: Transfers between 529 and ABLE (savings accounts for individuals with disabilities) are now permanently allowed, and contributors retain eligibility for the Saver’s Credit—advantages that support flexible, lifelong savings.
These upgrades firmly position 529 plans as a frontline tool for saving across primary, secondary, college-level, homeschool, and vocational education.
- Introducing “Trump Accounts” for Newborns
A striking new provision targets children born between January 1, 2025, and December 31, 2028. Termed “Trump Accounts,” these accounts operate like starter IRAs with a built-in government contribution:
Automatic $1,000 at birth: Every eligible newborn receives a federal deposit upon establishing an account.
Annual contributions up to $5,000: Parents, relatives, employers (up to $2,500 each), and even nonprofits can contribute yearly, with adjustments for inflation.
Tax-deferred growth in index funds: Money is invested in diversified U.S. equity index funds, growing tax-deferred until the beneficiary turns 18.
Strategic withdrawal plan: At 18, the account converts to a traditional IRA. Up to 50% of the balance becomes accessible, with qualified withdrawals (education, first home purchase, business startup) taxed at lower long-term capital gains rates. Non-qualified or early withdrawals are taxed as ordinary income and may carry penalties.
Full access by age 30: After this, funds can be used for any purpose.
To ensure high participation, accounts may be set up automatically using social security data if parents haven’t opened one by a certain timeframe.
- Head-to-Head Comparison: 529 Plans vs. Trump Accounts
Tax treatment & growth:
- 529 plans offer tax-free earnings and withdrawals for education.
- Trump Accounts grow tax-deferred; withdrawals face income or capital gains tax based on use.
Seed funding:
- 529 plans receive no federal start-up money.
- Trump Accounts provide a $1,000 government seed deposit at birth.
Purpose & flexibility:
- 529 covers preschool to vocational school (including homeschool).
- Trump Accounts support education, homeownership, entrepreneurship, or any cost after age 30.
Contribution limits:
- 529 plans allow large, lump-sum contributions.
- Trump Accounts cap at $5,000 per year (plus employer match).
Eligibility window:
- 529s are available anytime.
- Trump Accounts are only for births from 2025 to 2028.
- Why Use Both? An Integrated Strategy
Start with education: Given full tax-free withdrawal for school costs, max out the 529 plan first.
Enjoy the free $1,000: Open a Trump Account at birth to secure the government’s seed money.
Allocate smartly: Use Trump Account funds for non-educational goals—such as buying a home or launching a business—once the child reaches adulthood.
Ensure long-term planning: The Trump Account can serve as a supplement or a bridge toward retirement, making it a broader, more versatile savings vehicle.
- Challenges & Caution Points
Tax complexity: Trump Account withdrawals have layered tax rules—capital gains for education, ordinary income otherwise—which require diligence.
Administrative uncertainties: Final IRS rules on withdrawal eligibility, investment options, and enforcement are still pending.
Equity concerns: Some critics argue universal benefits could disproportionately aid wealthier families, although supporters claim providing every child a savings start promotes financial inclusion.
Comparative benefits: Although Trump Accounts offer free seed funding, 529 plans still deliver superior tax advantages for education, and other vehicles like Roth IRAs or HSAs may offer better flexibility and tax treatment for specific goals.
- Practical Planning & Next Steps
Research state-specific 529s: Some states also offer tax deductions or matching programs—shop around for the best fit.
Open early: Set up both accounts as soon as possible—529s for educational paths and Trump Accounts for general financial empowerment.
Coordinate contributions: Monitor combined contribution limits, especially when employers are involved.
Track legislation: Keep up with IRS guidance to stay ahead of changing rules and optimize tax benefits.
Final Words
The One Big Beautiful Bill significantly expands 529 plan flexibility and launches Trump Accounts—government-seeded savings vehicles for children. For families, a dual strategy is wise: use 529s to maximize education savings and Trump Accounts to build a broader financial foundation across adulthood. With careful planning, understanding of rules, and smart coordination, parents can leverage both tools to put their children on a solid path toward future success.
by Donald Hayden
As the Co-Founder and CEO of Private Tax Solutions, Don is passionate about assisting small businesses in navigating the intricate landscapes of accounting, taxes, and financial planning. My goal is to help you feel at ease with your finances while maximizing your business’s potential. Let’s transform tax season from a source of stress into an opportunity for growth and make your financial goals achievable!