The people's voice of reason
The people's voice of reason
Someone seeing an ad for Trump Accounts might wonder: How is this different from the 529 plan and custodial account I already set up? Why would I open a retirement account for my 5-year-old?
Those questions get to the real issue: These accounts aren’t interchangeable, and the right choice depends on what you’re trying to accomplish.
Many American families are trying to balance two priorities: saving for their kids’ college and their own retirement. Now, with the introduction of Trump Accounts (also known as 530A accounts) in July 2026, there’s a new investment account option created especially for children. Alongside 529 plans, Roth IRAs, and custodial accounts, parents are weighing which option — or combination — makes the most sense.
The right account depends on whether you’re saving for your child’s education or retirement and how much flexibility and control you need. Sometimes you’ll want more than one. Bob Petix, a private wealth strategist with Wells Fargo Wealth & Investment Management, breaks down how each account works and when to use it.
“It’s less about the account itself and more about what you want the money to do,” Petix says.
While these accounts may be grouped together when talking about kids and money, they are designed to work in different ways. Here’s how each one works.
Trump Accounts: This investment account is available to children under 18 and is designed for long-term retirement savings, not necessarily educational spending. Eligible children born between 2025 and 2028 can elect to receive a $1,000 contribution from the U.S. Department of the Treasury. It’s not automatic, so you’ll have to file an election to claim it.
For older children, you can fund the account with up to $5,000 in annual contributions from sources such as family, friends, and employers. Nonprofits can also make contributions, which do not count toward the $5,000 limit. The federal government’s pilot program contribution also does not count toward that limit. Contributions grow tax-deferred, meaning the taxes are delayed until the money is withdrawn. The account converts to a traditional IRA when the child turns 18. The account is in the child’s name, and an adult — typically a parent or guardian — is the custodian until the child turns 18. Investments are limited to low-cost mutual funds and ETFs (exchange-traded funds) that track broad U.S. market indexes.
529 plans: This tax-advantaged account is built primarily for education expenses, including college, graduate school, and, in many states, K-12 private school tuition. Contributions grow tax-free, which means investment gains are not taxed when used for qualified education costs. Contributions may be deductible from income taxes in certain states.
Roth IRAs: Children can only contribute money they earned, such as from a job, babysitting, or a side hustle, up to the annual IRS contribution limit. Contributions are after-tax, meaning that growth and withdrawals are tax-free.
Custodial Accounts (UGMA/UTMA): This is a flexible investment or gifting account opened by an adult as custodian to manage for the benefit of a child. There are no restrictions on how the money is eventually used, but the child gains full legal control of the assets at the age of termination, which is the age the custodial account is required to terminate under the applicable state law. Investment earnings may be taxed under “kiddie tax” rules.
You may come across Coverdell Education Savings Accounts. They’re also tax-advantaged accounts built for education expenses, but income limits and a $2,000 annual contribution cap make them a limited option for most families. Petix noted that, for many families, the limits outweigh the benefits.
Trump Accounts
529 plans
Roth IRAs
Custodial accounts (UGMA or UTMA)
The account matters less than the goal behind it. “There are so many arrows in your quiver. Understanding which arrows to select really depends on the target,” said Petix. And sometimes you’ll want more than one account.
One of the biggest advantages you can give a child is time: The earlier money is invested, the longer it has to grow.
Over time, growth can build on itself. Introducing your children to how investing works can also help build knowledge and habits that can shape financial decisions later in life.
Starting early can help in different ways, depending on the goal. For education savings, more time may give 529 contributions a longer runway before tuition bills arrive. For long-term investing, early contributions can stay invested for decades, which is where Trump Accounts may have an advantage for young children who don’t have earned income.
“When you consider 18 years of growth before the Trump Account converts to an IRA, and then another 50 years of tax-deferred accumulation, even a small initial investment can make a meaningful difference by retirement,” Petix said.
Even small early contributions can snowball. Here’s how that looks on paper:
At a 6% annual return, a one-time $1,000 investment at birth grows to about $2,900 by age 18. If left untouched, it will grow to about $53,000 by the time your child is considering retirement at age 68. This example is for illustrative purposes only and does not represent the performance of any specific investment.
Now consider how additional contributions change the outcome: $5,000 a year (that’s less than $100 a week) for 18 years at a 6% return grows the account to about $154,000 by the time the child turns 18. If you make no further contributions and that money stays invested for another 50 years at the same rate, it could reach roughly $2.8 million.
That outcome isn’t driven by contributions alone. It comes from starting early and letting decades of compounding do the heavy lifting.
Where the accounts differ is in access and purpose. Trump Accounts remove the hurdle of earned income, a requirement that makes Roth IRAs inaccessible to most young children. The 529 plans serve a different goal. They’re built for education expenses and most effective when you’re confident your child will pursue some form of schooling.
Understanding how these accounts change as your child grows is just as important as knowing what they do today. Every account involves tradeoffs. The tax advantages that make these accounts attractive also come with rules, limits, and restrictions.
For families thinking about college financial aid, keep in mind that accounts in a child’s name are typically assessed more heavily than parent-owned accounts.
Trump Accounts
These long-term retirement accounts are opened in the child’s name and managed by a parent until age 18, when the account converts to a traditional IRA and the child takes full control. Because no earned income is required, you can start contributing as soon as it’s open, which is its main advantage. The tradeoff is flexibility. Withdrawals are limited before the child turns 18. Once the account is converted to a traditional IRA, if your child withdraws the money before retirement, IRA rules generally apply. That means your child will owe regular income tax on the amount plus a 10% additional tax on top of that, unless they meet certain exceptions. Petix recommends having that conversation with your child well before they turn 18. The account will be theirs, and so will the decision of what to do with it. It’s designed to stay invested for decades, not to be cashed out early.
Currently, there is uncertainty about whether the account will be treated as a student-owned asset and whether it will affect college financial aid eligibility.
529 Plans
While these accounts have some flexibility, they are most effective when education is the expected outcome. The account owner retains control, and beneficiaries can often be changed to another qualifying family member if the original beneficiary doesn’t pursue higher education or doesn’t fully utilize the funds. Some states offer a tax deduction even if you contribute to a 529 and withdraw the money right away for qualified K-12 expenses. That can make a 529 useful for current school costs, not just future ones.
If you don’t end up using all the money, you can keep it for your child’s future education, transfer it to another family member, or in some cases roll it into a Roth IRA for your child. Taking money out for non-education purposes may trigger taxes and a penalty.
For financial aid purposes, 529 plans are typically treated as parent-owned assets, which may reduce their impact on aid eligibility compared with accounts in a child’s name.
529 plans allow superfunding — contributing up to five years’ worth of annual gift-tax exclusions at once. That can give savings more time to potentially grow before education expenses arise.
Roth IRAs
This account is owned by the child from the start, so there’s no shift in control over time. The long-term advantage is tax-free growth, meaning your child won’t owe taxes on gains when they withdraw the money later, as long as they follow the rules. Qualified withdrawals in retirement are tax-free, though early withdrawals may trigger taxes and penalties. Contributions require earned income, which limits access for younger children.
“Because of the rather inflexible rules regarding Roths and earned income, most people are not in the position to take advantage of them for young children,” Petix said.
Roth IRA balances aren’t counted as assets on the Free Application for Federal Student Aid (FAFSA). However, untaxed IRA distributions are included in the financial information used to determine aid eligibility, so withdrawals can affect future financial aid awards.
Custodial Accounts
Managed by an adult while the child is a minor, these accounts can be used for a wide range of expenses as long as the spending benefits the child. Once the child reaches the age of termination, they take full control of the account and can use the money for any purpose. That shift in control is the main tradeoff.
Because the assets are in the child’s name, they’re typically assessed at a higher rate in federal aid calculations than parent-owned accounts, which can reduce eligibility.
What if my child doesn’t qualify for the Trump Account pilot seed money?
The $1,000 seed is a bonus, but it isn’t the point. The account can still be worth opening. You have the flexibility of contributing up to $5,000 every year to it to maximize the compounding.
Can grandparents and others contribute to a child’s accounts?
Yes. Grandparents, parents, employers, and others can all contribute, but the rules vary.
Should I prioritize college or retirement for my child?
It depends on your family’s circumstances. If education funding is still a goal, the 529’s tax-free growth on qualified expenses may come first because the money can grow tax-free when used for eligible education costs. If you already have a 529 for education goals, Trump Accounts add a separate way to start long-term retirement investing without requiring earned income.
What if I don’t know whether my child will go to college?
If college isn’t a certainty, flexibility matters more than tax efficiency. A 529 plan is purpose-built for education, and that’s both its strength and its limitation. If your child ends up not going to college, you can redirect the funds to another qualifying family member, but your options are narrower.
“If flexibility is one of your primary objectives, then maybe a 529 isn’t the right fit,” Petix said. A trust, by contrast, can be structured to fund education, help buy a house, start a business, or make other kinds of distributions, essentially whatever the trust documents allow. “Trusts are bespoke,” he said. “You can tailor them to pretty much what you want.” The trade-off is that trusts don’t carry the same tax advantages as a 529.
If you have a strong expectation of college but want a parallel vehicle for other goals, combining accounts is a reasonable approach. On the other hand, the One Big Beautiful Bill Act expanded the opportunity to use 529 funds for vocational and other professional expenses.
What if my child earns money from a job or business?
Earned income opens the door to a Roth IRA. Practically speaking, babysitting, lawn mowing, a part-time job, or any legitimate self-employment counts. A child can contribute up to the IRS annual limit (or their total earned income, whichever is less), and contributions are after-tax, meaning that growth and withdrawals are tax-free.
What if I want the child to be able to use the money for a car, house, business, or other need?
In those cases, families often look beyond these account types to more flexible options like trusts, which can be structured around specific milestones or broader financial goals.
This story was produced by Wells Fargo and reviewed and distributed by Stacker.
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