Regardless of which side of the aisle you lean towards, new government legislation affects us all. President Donald Trump's "One Big Beautiful Bill," signed on July 4th, introduces significant changes to education and long-term savings options. The legislation expands existing 529 education-savings plans and establishes a new savings vehicle: Trump Child Accounts.
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EXPANDED 529 PLANS
Originally designed for college tuition, 529 plans, named after Section 529 of the Internal Revenue Code, have seen their scope broadened in recent years. First with the SECURE 2.0 Act and now with the Big Beautiful Bill. Contributions to these investment accounts aren't federally tax-deductible, but earnings grow tax-free, and qualified withdrawals are exempt from federal and state income taxes.
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What’s Changed:
- Starting now, 529 funds can be used to cover postsecondary vocational credentialing costs, including tuition, books, and exam fees for professional degrees and certifications like CFP and CPA designations.
- Starting next year, K-12 qualified expenses will expand beyond tuition to include workbooks, textbooks, standardized exam fees, online programs, tutoring, dual enrollment, and educational therapies for disabled students.
- Starting next year, the annual tax-free withdrawal limit for K-12 expenses has also doubled from $10,000 to $20,000 per beneficiary.
INTRODUCING TRUMP CHILD ACCOUNTS
Alongside 529 changes, the bill establishes Trump Child Accounts, a new tax-deferred savings plan. Parents and grandparents can contribute up to $5,000 annually (inflation-adjusted) for a minor, with contributions not being tax-deductible. To kickstart the program, the federal government will provide a $1,000 contribution for every U.S. citizen born between 2025 and 2028 upon request.
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How Are These Accounts Different from 529s?
- Trump Accounts do not permit withdrawals before age 18.
- From age 18 until the beneficiary reaches 59½, distributions must be for qualified expenses—higher education expenses, small business or small farm expenses, or up to $10,000 for a first home purchase—to avoid penalties.
- After 59½, distributions can be taken for any purpose without penalty.
- Earningswill be taxed upon distribution.
- Funds in Trump accounts can only be invested in mutual funds or an ETF that “tracks the returns of a qualified index,” and “does not have annual fees and expenses of more than 0.1 percent of the balance of the investment in the fund.”
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By utilizing a 529 plan and/or Trump account, families can take proactive steps toward ensuring a brighter educational path for future generations.
CONTACT US to schedule a review with one of our financial professionals today to discuss a savings strategy to ensure that your family is on the right track.