SAVING FOR A CHILD’S FUTURE
What’s new: Starting in tax year 2026, you can withdraw double the amount of assets ($20,000) annually from 529 plans for K-12 education and qualifying expenses. In addition, 529 plan distributions made after July 4, 2025, can be spent on post–high school credential programs offered by vocational, trade and technical schools, including expenses for tuition, books, supplies and testing fees. What to do: The OBBBA turns
529 plans into broad education savings accounts. You can spend the money on careers that require certification or licensing, such as aviation maintenance and plumbing.
What’s new: Trump Accounts—these savings vehicles for young people follow IRA-style rules with strict contribution and investment limits. How they work: Anyone can make contributions to a Trump Account, including parents, grandparents, friends, and even employers of parents, but there is a total limit of $5,000 annually that will be indexed for inflation in successive years. Contributions must be made with after-tax
money. Assets in Trump Accounts must be invested in low-cost US equity index funds until the beneficiary reaches age 18. Earnings compound on a tax-sheltered basis and are taxed as ordinary income upon distribution. Withdrawals are not allowed prior to age 18, and withdrawals made before age 59½ are subject to taxation at the beneficiary’s ordinary income tax rate plus a 10% penalty. Exceptions: Funds may be withdrawn after age 18 penalty-free for first-home purchases, post-secondary education, and the birth or adoption of a child. Note: Any employer contributions are not included in the gross income of the parent/ employee or child. After the child turns 18, the Trump Account becomes a traditional IRA and is subject to RMDs at age 75. What to do: The earliest you can fund a Trump Account is July 4, 2026. Financial-services companies have to qualify as custodians with the IRS. Most likely, financial-services companies that offer IRAs today will offer Trump Accounts. The accounts are most compelling for parents with newborns because
the US Treasury will make a one-time $1,000 contribution for children born between January 1, 2025, and December 31, 2028. Note: The $1,000 seed grant does not count toward the $5,000 limit. Smarter option: If you are saving for a child’s education, it makes more sense to prioritize contributions to a 529 plan. You may get a state tax break on contributions, and withdrawals are tax-free when used for qualified educational expenses.