Trump Account or 529: which is better for college?

For most families saving for college, a 529 plan leaves more money for tuition. Qualified 529 withdrawals are tax-free, and financial aid counts a parent's 529 far more lightly. The Trump Account's strengths are the free $1,000 and flexibility after 18.

The tax difference

When money comes out of a Trump Account, the growth, any employer money and the $1,000 are taxed as your child's ordinary income; what family members put in comes back tax-free. Before age 59½ there is also a 10% penalty, waived for qualified uses such as education or a first home. Qualified education withdrawals from a 529 are tax-free.

The financial aid difference

The FAFSA treats a Trump Account as the student's asset, counted at up to 20% of its value. A parent-owned 529 is counted at up to 5.64%, and a grandparent-owned 529 is not reported at all. On a $25,000 balance, that is roughly $5,000 less aid versus about $1,410. Final federal guidance on Trump Accounts is still pending.

When a Trump Account makes sense

• The free $1,000: claim it whatever else you decide.
• The money may go to a first home or retirement rather than college.
• An employer contributes: up to $2,500 a year can come in tax-free to you.
• You have already saved what you want in a 529.