There’s a lot of buzz right now around Trump Accounts, and for good reason. They’re new, they come with some attractive incentives, and Minnesota families are taking notice.
Many families are now wondering what is the best way to set their grandchildren up for success. Two tax-advantaged options stand out. The Minnesota 529 plan and the new Trump Account are both excellent saving vehicles for many families.
For a more comprehensive look at the tax considerations and how to think about gifting strategy across your family, download our free white paper.
The Basics
The 529 plan has been around for years and is a familiar tool for education savings. Minnesota’s version (MNSAVES) lets you contribute money that grows tax-deferred and can be withdrawn completely tax-free when used for qualified education expenses, such as college, university, or eligible trade and vocational programs. Minnesota also offers a state income-tax credit for contributors, which is an added benefit for in-state grandparents.
Trump Accounts are a brand new IRA-style savings account for children under 18. Contributions are invested in a broad U.S. stock index fund while the child is young, and converts to a traditional IRA when the child turns 18. Children born between 2025 and 2028 also qualify for a one-time $1,000 government seed deposit just for having an account opened, which is a meaningful head start on decades of compounding.
For a deeper dive on Trump Accounts, review our blog post: Trump Accounts: A New Savings Vehicle for American Families.
How The Accounts Compare
The biggest difference between these two accounts comes down to what you want the money to be used for.
A 529 is purpose-built for education. It has no annual contribution cap (though gift-tax limits apply), and the account owner keeps control of the funds indefinitely. Withdrawals are tax-free for qualified education expenses, and Minnesota contributors receive a state income-tax subtraction or credit as an added bonus.
If plans change, the beneficiary can be redirected to another family member, or unused balances can even be rolled into a Roth IRA. It’s a flexible, well-established tool with a clear purpose.
A Trump Account is designed for long-term potential. Contributions can be made by anyone and can include non-taxable compensation. However, these contributions are capped at $5,000 per year and are non-deductable from your annual taxable income.
Trump Accounts must be invested in a diversified index fund of U.S. stocks until the beneficiary turns 18, at which point the account converts to a traditional IRA that the child controls.
Once the child turns 18, withdrawals follow ordinary IRA rules and are taxed as income. Exceptions include expenses for higher education, the purchase or construction of a first home, birth or adoption expenses, emergency personal expenses, and certain medical expenses.
One important note is that Trump Account rules are still being finalized by the IRS. Make sure you’re working with current and accurate guidance before opening or funding an account.
So Which One Is Right?
A lot of this comes down to what you expect your grandchild to do after high school. If college is the likely path, a 529 is the clear choice for education funding.
If you’re interested in giving your grandchild a financial head start that is flexible beyond tuition, a Trump Account offers a unique opportunity, especially if your grandchild is eligible for the $1,000 seed deposit.
For many, funding a combination of both accounts is the smartest move. Use a 529 for education costs and a Trump Account as a long-term wealth-building foundation. They serve different purposes and work well together.
Want to Learn More?
If you’d like a more comprehensive look at how these accounts work together and how to maximize their impact over time, download our free whitepaper. It walks through the details, the tax considerations, and how to think about gifting strategy across your family.
Advisory services offered through Secured Retirement Advisors, LLC. Secured Retirement Advisors is registered as an investment advisor with the Securities and Exchange Commission and only transacts business in states where it is properly notice filed, or is excluded or exempted from registration and/or notice filing requirements.
