Trump Account or 529 plan: which to fund first

Two accounts, two jobs

A 529 plan is built for education. Withdrawals for qualified education expenses are free of federal income tax. A Trump Account is built more like a retirement account: it grows tax deferred, and withdrawals after the growth period are taxed under traditional IRA rules. The question is less which account is better and more which job you need the money to do.

When the money pays for college

If the savings will clearly go to tuition, a 529 usually comes out ahead, because its growth is never taxed. In a Trump Account, growth is taxed as income when withdrawn, although the 10% additional tax does not apply to qualified higher education expenses. The comparison calculator shows the gap for your own numbers.

When it might not

If you are not sure the child will go to college, the picture changes. A 529 withdrawal for other purposes taxes the earnings and adds 10%. A Trump Account can simply stay invested as a retirement account after 18. Families who value that flexibility sometimes split contributions between the two.

Free money changes the order

Collect money that is offered before choosing.

• If your child qualifies for the $1,000 pilot contribution, it only goes into a Trump Account.
• If an employer contributes to a Trump Account, that money does not reduce your pay.
• If your state gives a tax deduction for 529 contributions, that benefit only applies to the 529.

A simple way to decide

Claim the pilot contribution and any employer money first, since they cost nothing. Then put savings meant for education into a 529, especially if your state offers a deduction. Use the Trump Account for long-term money you want to keep invested past 18. Check current rules before acting, because Trump Account guidance is still being finalized.