Trump Accounts, Expanded 529s, and the New Rules for Funding Your Grandchild’s Future

 

Key Points:

• • The OBBBA introduced Trump Accounts (Section 530A), a new tax-deferred savings vehicle for children under 18, available for contributions beginning July 4, 2026.
  • Children born between January 1, 2025 and December 31, 2028 are eligible for a one-time $1,000 federal seed deposit — but it must be elected; it is not automatic.
  • Contributions to Trump Accounts from all non-exempt sources are capped at $5,000 per year (indexed for inflation after 2027), and funds must be invested in broad U.S. equity index funds with expense ratios no greater than 0.10%.
  • No withdrawals are permitted before the year the child turns 18, at which point the account converts to a traditional IRA under standard IRA rules.
  • The OBBBA doubled the annual 529 withdrawal limit for K–12 expenses from $10,000 to $20,000 per beneficiary, effective 2026, and significantly expanded the list of qualified K–12 expenses.
  • 529 superfunding remains available at $95,000 per beneficiary ($190,000 for married couples using gift-splitting) based on the 2026 annual exclusion of $19,000.
  • Trump Accounts and 529 plans serve different purposes and are not mutually exclusive — some effective strategies for grandparents typically involve both.

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The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made sweeping changes to the tax code. Most of the headlines focused on estate tax exemptions, income tax brackets, and the permanent extension of expiring provisions. But buried inside the legislation are two sets of changes that deserve serious attention from grandparents and parents who are building wealth for the next generation: the creation of Trump Accounts and a meaningful expansion of 529 plan flexibility.

For grandparents with the capacity and intention to fund their grandchildren’s futures — whether that means private school tuition, college, a first home, or simply a head start in life — the OBBBA changed the toolkit. Understanding what’s new, what’s unchanged, and how these vehicles interact with existing gifting and estate planning strategies is essential before putting money to work.

What Are Trump Accounts, and How Do They Work?

Trump Accounts, formally designated as Section 530A accounts under the tax code, are a new type of individual retirement account established for U.S. citizen children. The accounts were introduced in the OBBBA and will become available for contributions beginning July 4, 2026.

The basic mechanics:

• Trump Accounts function like traditional IRAs for eligible minors and are subject to an aggregate annual contribution limit of $5,000, adjusted for inflation after 2027.
• Parents or legal guardians, grandparents, family members, and friends may make contributions. Account beneficiaries may also contribute to their own accounts.
• Until the beneficiary turns 18, the Trump Account may only be invested in broad U.S. equity index funds that track a qualified index such as the S&P 500, do not exceed annual fees or expenses above 0.10%, and do not use leverage.
• No withdrawals are permitted before the account beneficiary turns 18, except for certain rollovers, distributions upon death, and distributions of excess contributions. Once the account beneficiary turns 18, distributions from the Trump Account are permitted for any purpose.
  • Withdrawals from a Trump account are subject to ordinary income tax and a 10% penalty. They follow the same rules as a traditional IRA after the beneficiary turns 18. Same exceptions for the 10% penalty apply.
  • One difference is that after tax contributions from family are not taxable. Withdrawals are taxed pro-rata based on basis (not taxed) versus employer contributions, government contributions or growth (taxed). Each withdrawal is taxed based on the proportion of the account.
• After the beneficiary turns 18, distributions in excess of the account beneficiary’s basis are taxable as ordinary income to the beneficiary.
• Trump Account contributions are in addition to and do not reduce the allowable contribution limits for other IRAs, including Roth and traditional IRAs. Gifting funds to a Trump account counts against the donor’s $19,000 gift tax exemption. Employers can also make contributions.

One important clarification on the $1,000 federal seed deposit: the federal government will make a one-time $1,000 pilot contribution to the Trump Account of each eligible child born between January 1, 2025 and December 31, 2028, but only for whom an election is made by filing IRS Form 4547. No contribution of any type may be made before July 4, 2026. The deposit is not automatic — it requires action.

Children born outside the 2025–2028 window are still eligible for Trump Accounts but will not receive the initial $1,000 of federal funding. Any child who is a U.S. citizen under 18 with a valid Social Security number qualifies to have an account opened on their behalf.

What Does the $5,000 Annual Limit Actually Mean for Grandparents?

The $5,000 annual cap is an aggregate limit — it applies to all contributions from all sources combined, not per contributor. Employers may establish a Trump Account Contribution Program and contribute up to $2,500 to a Trump Account of an employee or the dependent of an employee, but these employer contributions count toward the same $5,000 annual contribution limit.

Exempt from the cap: qualified general contributions from certain governments and charitable organizations, qualified rollover contributions, and the $1,000 government pilot program contribution do not count toward the $5,000 annual limit.

For grandparents accustomed to funding 529 plans with five-figure contributions, the $5,000 ceiling is modest. But over the full growth period — from birth to age 18 — consistent annual contributions of $5,000 beginning in 2026 represent $90,000 in principal before any market growth. At a 7% average annual return, that balance would grow to approximately $166,000 by the time the child reaches 18. For families with multiple grandchildren, the cumulative impact is meaningful.

The practical question for most grandparents isn’t whether to open a Trump Account for a grandchild — for eligible newborns, the free $1,000 federal seed deposit alone makes that an easy decision. The more important question is how much of their annual gifting capacity to direct here versus to 529 plans, direct gifts, or trusts.

How Do Trump Accounts Interact With the Annual Gift Tax Exclusion?

Contributions to a Trump Account on behalf of a grandchild are treated as gifts for federal gift tax purposes. In 2026, individuals can gift up to $19,000 per recipient, or up to $38,000 if married and filing jointly, without those contributions counting toward the lifetime gift tax exemption.

Because Trump Account contributions count as gifts, they consume a portion of the annual exclusion available for that grandchild. A grandparent contributing the full $5,000 to a Trump Account still has $14,000 in remaining annual exclusion available for the same grandchild through other vehicles — 529 contributions, direct gifts, or UTMA/UGMA contributions.

For grandparents with multiple grandchildren, coordinating Trump Account contributions with 529 contributions, annual exclusion gifting, and broader estate planning strategies is the kind of planning where a CFP® can add significant value. The vehicles don’t compete — they layer.

What Changed With 529 Plans Under the OBBBA?

While Trump Accounts captured most of the headlines, the OBBBA’s changes to 529 plans may ultimately affect more families. The changes are in effect now and applicable to withdrawals taken after the law’s enactment on July 4, 2025.

The K–12 annual withdrawal limit doubled.

Effective January 1, 2026, the annual withdrawal cap for K–12 education expenses increased from $10,000 to $20,000 per beneficiary. For grandparents helping to fund private school tuition — a common arrangement among Carter’s clients — this is a material improvement. Many private elementary and secondary schools in the Dallas area charge tuition well above $20,000 annually, but the doubled limit means a significantly larger portion of that cost can now flow through the tax-advantaged structure of a 529.

The definition of qualified K–12 expenses expanded substantially.

In addition to the higher withdrawal limit, the OBBBA expanded the list of qualified K–12 expenses beyond tuition to include: curriculum materials, textbooks, and online educational materials; tutoring provided outside the home by a qualified, unrelated tutor; fees for standardized tests, Advanced Placement exams, and college admission exams; dual enrollment fees for postsecondary programs taken while in high school; and educational therapy costs for students with disabilities, including occupational, behavioral, physical, and speech-language therapies.

Credential and workforce education programs now qualify.

The OBBBA created a new category of qualified expenses covering workforce education programs and postsecondary credentialing expenses to obtain or maintain various trade and professional certifications. The costs can include tuition, exam fees, books, supplies, and equipment required for enrollment or attendance in these programs. This transforms the 529 from a college-only vehicle into something useful for grandchildren who pursue skilled trades, technical certifications, or professional licensure.

The 529-to-ABLE rollover is now permanent.

The OBBBA made permanent the provision allowing tax-free rollovers from 529 plans to ABLE accounts, which provide tax-advantaged savings for individuals with disabilities. For grandparents with grandchildren who have disabilities, this removes a prior planning uncertainty.

One important caution:

these changes apply at the federal level. Many states do not conform to the expanded federal K–12 rules, meaning that while distributions may be federally tax-free, they could be subject to state income tax or recapture of prior state tax benefits if the account holder’s state does not recognize these changes. Texas has no state income tax, so this concern is less acute for most Carter clients — but grandchildren attending school in non-conforming states like California or New York, or accounts held in plans domiciled in those states, may require additional analysis.

Does the OBBBA Change the Case for 529 Superfunding?

No — and in some respects the case is stronger than ever.

Superfunding refers to the IRS provision that allows a contributor to front-load five years’ worth of annual gift tax exclusions into a 529 in a single year, treating the contribution as made ratably over five years for gift tax purposes. With the 2026 annual exclusion at $19,000 per person, a single contributor can superfund up to $95,000 per beneficiary in a single contribution. Married couples using gift-splitting can contribute up to $190,000 per beneficiary at once. If additional contributions are made to that same beneficiary’s 529 during the five-year window, those amounts may be subject to gift tax, and a Form 709 must be filed in the year the superfunding contribution is made.

For grandparents who want to move significant capital out of their taxable estate quickly — perhaps because they’ve already used meaningful lifetime exemption or simply prefer to fund education with a single transaction rather than annual contributions — superfunding remains one of the most efficient tools available.

With the expanded 529 uses now in effect, the funds aren’t locked into traditional college expenses. A superfunded 529 opened today for a newborn grandchild can potentially fund 12 years of private K–12 expenses (up to $20,000 per year), followed by college, graduate school, or professional credentialing — all on a tax-free basis as long as withdrawals are used for qualified expenses.

If the child ultimately doesn’t need the funds, families can roll up to $35,000 lifetime into the beneficiary’s Roth IRA tax- and penalty-free, subject to annual contribution limits, earned income requirements, and the 15-year account seasoning rule. The overfunding risk that once made some grandparents hesitant to superfund has diminished considerably.

Trump Accounts vs. 529 Plans: How Do They Actually Compare?

These two vehicles serve meaningfully different purposes and should be evaluated on their own terms rather than treated as competing alternatives.

Tax treatment differs at withdrawal. 529 withdrawals for qualified education expenses are completely tax-free at the federal level. Trump Account distributions after age 18, by contrast, are taxed as ordinary income on the growth above basis — the same as distributions from a traditional IRA. For grandchildren who expect to be in high tax brackets at 18 and beyond, the 529’s tax-free withdrawal structure may produce a better outcome for education-specific spending.

Investment flexibility differs significantly. Trump Accounts have more restrictions than 529 accounts — funds must be invested in broad U.S. equity index funds during the growth period, and the account converts to a traditional IRA at 18. 529 plans typically offer a range of age-based and static investment options across multiple asset classes.

Purpose and flexibility differ. Trump Accounts, once the child reaches age 18, can be used for any purpose — not just education. A grandchild who chooses not to attend college can still access the funds. However, withdrawals taken before age 59½ may be subject to a 10% penalty, depending on how the account is structured and used.

529 plans, by contrast, are purpose-built for education and career credentialing, with a 10% penalty on earnings (plus ordinary income tax) for non-qualified withdrawals. That said, the Roth IRA rollover option and expanded qualified uses have reduced this constraint meaningfully.

Contribution capacity differs. The $5,000 annual Trump Account cap is firm. 529 plans have no federal annual contribution limit — only the annual gift tax exclusion governs how contributions interact with gift tax rules, and superfunding allows large one-time contributions.

The straightforward framework: for grandparents whose primary goal is education funding, the 529 remains the more powerful and flexible vehicle. For families who want to give a grandchild a financial head start that isn’t tethered to a specific purpose, Trump Accounts add a new option — particularly when the $1,000 federal seed deposit is available at no cost to the family.

How Do These Changes Fit Into a Broader Gifting Strategy?

The OBBBA simultaneously expanded the estate planning toolkit at both ends: the $15 million estate and gift tax exemption (discussed in our recent post, The $15 Million Estate Exemption Is Permanent — Now What?) gives high-net-worth families far more lifetime gifting capacity, while the annual exclusion increase to $19,000 per recipient and the new Trump Account vehicle give grandparents more efficient channels for moving smaller amounts to grandchildren each year.

For a grandparent couple with, say, four grandchildren, the layered strategy might look like this:

• Trump Accounts: $5,000 per grandchild per year ($20,000 total annually for the couple, split between them) — gets money into a long-duration equity vehicle early, and captures the $1,000 federal seed for any grandchild born in 2025–2028.
• 529 contributions: Additional gifting up to the annual exclusion limit ($19,000 per grandparent per grandchild, less any Trump Account contributions) into 529 plans, with superfunding for any new grandchild where a large initial deposit makes sense.
• Direct annual exclusion gifts: For grandchildren with immediate needs — or to reduce the taxable estate efficiently over time — cash gifts up to the remaining annual exclusion after 529 and Trump Account contributions.

This kind of coordinated approach, aligned with a broader estate plan and reviewed against current gifting strategy, is exactly the type of planning that requires professional coordination. Contribution decisions that seem straightforward in isolation can have unintended gift tax reporting consequences, FAFSA implications for college financial aid calculations, and state-specific tax effects that vary by where the grandchild resides.

What Should Grandparents Do Right Now?

Several practical steps are worth considering before contributions become available on July 4, 2026:

For grandchildren born in 2025: Confirm that the IRS Form 4547 election process is on your radar. The $1,000 federal pilot deposit requires an active election — it will not be deposited automatically. Monitor guidance at trumpaccounts.gov and work with your advisor to ensure the election is made properly once accounts become available.

For grandparents currently superfunding 529 plans: The expanded qualified expense list and doubled K–12 withdrawal limit may change how you think about the optimal funding amount. A plan that looked slightly overfunded under the old rules may now be appropriately sized.

For grandparents with existing 529 accounts: Review your investment allocations in light of the expanded uses. A 529 that will now fund K–12 expenses beginning in the near term should have a different glide path than one being held for college use a decade away.

For all grandparents: Coordinate your Trump Account and 529 contributions with your annual gifting strategy. Each dollar contributed to a Trump Account on behalf of a grandchild uses a portion of the annual gift tax exclusion available for that grandchild. Understanding how these contributions interact — and how they fit within the broader context of your estate plan and the $15 million exemption — is worth a conversation before you begin writing checks.

What 50 Years of Planning Has Taught Us

At Carter Financial Management, we’ve guided clients through every major shift in the tax code since the firm’s founding in 1976. The tools available for grandparents funding the next generation have expanded considerably since then — from basic custodial accounts and savings bonds to today’s layered toolkit of 529 plans, Trump Accounts, dynasty trusts, and annual exclusion gifting programs.

What hasn’t changed is the principle that the families who do this best are the ones who plan deliberately rather than reactively. The OBBBA created new vehicles and expanded existing ones, but the families who will benefit most are those who take the time to understand how these tools interact, how they align with their values and intentions, and how they fit within a broader plan that was built to last beyond any single piece of legislation.

If you have grandchildren — or grandchildren on the way — and want to understand how Trump Accounts, expanded 529 plans, and your existing gifting strategy work together, we’d welcome the conversation. Our CERTIFIED FINANCIAL PLANNER® professionals can help you build a coordinated approach that reflects both the new rules and your family’s long-term goals.

Contact our team today to schedule a review.

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This content was created with the assistance of artificial intelligence (AI). While efforts have been made to ensure the quality and reliability of the content, it is important to note that AI-generated content may not always reflect the most current developments or nuanced human perspectives.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jonathan Meaney, CFP® and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Prior to making an investment decision, please consult with your financial advisor about your individual situation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.

529 plans come with fees and expenses, and there is a risk they may lose money or underperform. Most states offer their own 529 programs, which may provide benefits exclusively for their residents. Please consider whether the state plan offers any tax or other benefits. Tax implications can vary significantly from state to state. Tax-free withdrawals may be made for qualified education expenses. Otherwise, the deferred earnings portion may be subject to taxes and a 10% penalty. Tax laws and provisions may change at any time. Death of the contributor prior to the end of the five-year period may result in a portion of the contribution to be included in the contributor’s estate. State tax treatment of K–12 withdrawals is determined by the state(s) where the taxpayer files state income tax. Please consult with a tax advisor for further guidance and/or to discuss tax matters. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period.