Section 529 Qualified Tuition Plans (QTPs) and Trump accounts are two important education savings tools. Some families might want to use both. I’m going to compare highlights of these two alternatives here.

Note that I’m not covering all of the details for these accounts. You can find more details at https://trumpaccounts.gov/ and, including more education tax benefits, in Publication 970 (https://www.irs.gov/pub/irs-pdf/p970.pdf).

Note that state income tax rules for these accounts might be different from the federal tax rules discussed here. Consult with a tax advisor familiar with the state’s rules or otherwise find out the rules that apply for your state.

Trump accounts were created in the One Big Beautiful Bill Act enacted July 4, 2025. They were the fulfillment of a campaign promise for the U.S. government to set up a $1,000 education savings account for newborn children born in the United States. Trump accounts were created to receive those payments with many more features.

The name “Trump accounts” may be a turn-off for many, but they should hold their noses and consider having them for their children, anyway.

QTPs have been with us for a while and have significant advantages compared to Trump accounts.

What is a Trump account? A Trump account is a special type of IRA that can be set up for an individual who has not attained age 18 before the end of the calendar year in which an election to set up a Trump account is made and for whom a social security card was issued before the election was made. The child is the owner of the account (who I’m calling the beneficiary) and an authorized individual, usually a parent, is the custodian before the beneficiary reaches age 18. Unlike other traditional IRAs, contributions to the account aren’t based on earned income. The account grows tax-deferred and then converts to a traditional IRA when the beneficiary reaches age 18. No distributions from the account are allowed until the beneficiary reaches age 18. At age 18, the beneficiary becomes the owner of the account. Investments are limited to certain index funds or exchange traded index funds.

What is a Qualified Tuition Plan (QTP)? A QTP is a program established by a state or an eligible education institution to prepay a student’s qualified education expenses or accumulate funds on a tax-deferred basis to pay a student’s qualified education expenses.

Trump account Pilot program

Trump accounts are the only accounts that can receive the $1,000 “pilot program” contribution from the federal government. An authorized individual must elect to open an initial Trump account to receive it, using Form 4547. An eligible child is a qualifying child who is born during the 2025, 2026, 2027 or 2028 calendar years, has had no previous pilot program election made by any individual, and is a United States citizen. If nothing else, there is no reason not to accept this “gift” from the U.S. government.

Number of accounts

A child can only have one Trump account. The balance can be rolled over, but only one Trump account can hold funds for a beneficiary at any time.

There can be multiple QTPs for a beneficiary. They are not generally aggregated. They are accounted for separately. However, there is an overall limit to the amount QTP accounts can hold, which is the amount required to fund the beneficiary’s expected education expenses. For example, a student at Stanford University has expected annual education expenses of $96,513. A California resident student at UC Berkeley has expected annual education expenses of $45,053 while a California nonresident student has expected annual education expenses of $62,611.

Who can set up an account?

An initial Trump account is set up by the Secretary of the Treasury (via the IRS) based on the election using Form 4546 filed by an authorized person. You can find a link to set up an account online at www.irs.gov. Under a proposed ordering rule, the authorized individual would be, in order of priority, a legal guardian, parent adult sibling, or grandparent of the eligible individual.

Apparently, anyone can set up a QTP for a beneficiary to pay their qualified education expenses. Whoever sets up or contributes to an account should coordinate with other donors to avoid excess contributions.

What are the maximum contributions for an account?

Contributions from the pilot program, qualified general contributions (such as from a state government), or qualified rollover contributions to a Trump account aren’t subject to an annual contribution limit. The total of other contributions before the beneficiary reaches age 18, including from employer contributions and contributions by parents and relatives, are subject to an annual limit of $5,000 (subject to cost of living adjustments after 2027.)

The IRS has issued a transfer tax safe harbor (Rev. Proc. 2026-25) that excludes most contributions to a Trump account from federal gift tax reporting, as gifts of a present interest. Taxpayers who make present interest gifts exceeding $19,000 for a donee are still required federal gift tax returns, Form 709. Since beneficiaries don’t have access to the funds until they reach age 18, there was a concern the contributions should be considered future interests.

Contributions to a QTP are treated as present interests, eligible for the $19,000 annual exclusion. If a contribution exceeds $19,000 for 2026, the donor may elect to have it treated as made over a five-year period, so a husband and wife could each contribute up to $95,000 ($190,000 for both) for a student for 2026. THIS IS A MAJOR ADVANTAGE OF QTPs. When that election is made, federal gift tax returns must be filed for each of the five years. Any amount that hasn’t been reported on a federal gift tax return when a donor dies is included in the donor’s taxable estate.

Otherwise, as I said before, the total amounts accumulated in QTPs for a beneficiary can’t exceed their expected education expenses.

Employer contributions to Trump accounts

Employers may set up employee benefit plans, including cash or deferred arrangements, for payments to a dependent’s Trump account, to make contributions of up to $2,500 per employee per year (subject to cost of living adjustments after 2027) to their employees’ dependents’ Trump accounts. (See Proposed Regulations at REG-101355-26.) This is an employee benefit that is excluded from the employee’s taxable income. The employer must have a written plan that doesn’t discriminate in favor of highly-compensated employees.

The term employee does not include a self-employed individual within the meaning of section 401(c)(1), such as a partner in a partnership, a sole proprietor, a director solely by reason of service as a director, or a 2-percent shareholder of an S corporation within the meaning of section 1372(b). Therefore, these individuals aren’t eligible to participate in the plan and are disqualified from the $2,500 exclusion from income.

There is no employee benefit plan for contributions to a QTP. Any employer contributions to a QTP of an employee’s dependent would be included in the employee’s taxable wages.

Qualified Education Expenses

When a Trump account beneficiary reaches age 18, the account converts to a traditional IRA and the beneficiary gets control of the account as an owner. Amounts withdrawn from the account are allocated to taxable ordinary income and nontaxable return of capital to recover nondeductible contributions to the account. Employer contributions on behalf of dependents of their employees are not included as capital, so they are included in ordinary income when they are distributed. The income is taxable to the beneficiary/owner.

Distributions from an IRA, including any taxable amounts distributed from a Roth IRA, before reaching age 59 1/2 are generally subject to a 10% of taxable IRA income early distribution penalty. Distributions that are used to pay qualified education expenses aren’t subject to the early distribution penalty.

Distributions from a QTP that are used to pay qualified education expenses are exempt from federal income tax. THIS IS A MAJOR ADVANTAGE OF QTPs. Qualified education expenses that are used to compute an American Opportunity Credit or Lifetime Learning Credit aren’t eligible for the exclusion. The portion of distributions in excess of qualified education expenses that is accumulated untaxed income is ordinary taxable income. The income is taxable to the individual(s) who set up the account, not the designated beneficiary of the account. A 10% penalty applies to the taxable income, with certain exceptions, such as amounts reimbursed from a tax-free scholarship or fellowship grant.

The definition of qualified education expenses is the same for IRAs and QTPs. They are referred to in the Internal Revenue Code and IRS publications as “qualified higher education expenses”.

They include tuition, fees, books, supplies and equipment required for the enrollment or attendance of a designated beneficiary at an eligible education institution, expenses for special needs services for a special needs beneficiary which are incurred in connection with such enrollment or attendance, and expenses for the purchase of computer or peripheral equipment, computer software, or internet access and related service when the equipment, software and services are used primarily by the beneficiary (not family members) during the years the beneficiary is enrolled at an eligible educational institution. Room and board are included only when the student/beneficiary attends the institution at least half time. Qualified expenses are reduced by tax-free education benefits (such as scholarships and employer-provided education assistance) plus the amount of qualifying expenses counted for computing an education credit.

A cumulative amount up to $10,000 of payments for principal or interest for a qualified student loan for either the beneficiary or their sibling is a qualified education expense. Interest paid using QTP funds doesn’t qualify for the student loan interest tax deduction.

An eligible educational institution is generally an accredited college or university, or an eligible elementary or secondary school.

Up to $20,000 of qualified elementary and secondary education expenses of a designated beneficiary also are eligible for distributions from a QTP that are excluded from taxable income. Qualified expenses include tuition, curriculum and curricular materials, books or other instructional materials, online educational materials, tuition for tutoring or educational classes outside of the home when the tutor isn’t related to the student, fees for nationally standardized norm-referenced achievement tests, advanced placement examinations, or any examination related to college or university admission, fees for dual enrollment in an institution of higher education, and educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies.

Effective for distributions after July 4, 2025, qualified postsecondary credentialing expenses, including tuition, fees, books, supplies, equipment and other expenses, also qualify, and testing fees required to obtain or maintain the credential and continuing education fees required to maintain the credential are qualified education expenses. (Helps those with professional designations.)

Transferability

The rules for transferability of traditional IRA accounts apply to Trump accounts, so they generally can’t be transferred to someone else during the beneficiary/account owner’s lifetime. A remainder beneficiary can be named for who will inherit the account after the account owner’s death, including possibly naming a trust as the remainder beneficiary.

Unlike IRAs, the designated beneficiary of a QTP can be changed during lifetime or after death to a member of the designated beneficiary’s family, including the beneficiary’s (1) spouse; (2) child, stepchild, foster child, adopted child or other descendant; (3) brother, sister, half brother, half sister, stepbrother or stepsister; (4) father, mother, or ancestor of either; (5) stepfather or stepmother; (6) son or daughter of a brother, sister, half brother or half sister; (7) brother or sister of father or mother; (8) son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law; (9) the spouse of any of the previously-listed people; or (10) first cousin.

This gives a lot of flexibility for unused balances in a QTP or for if the designated beneficiary decides not to pursue further education. The person who set up the account generally retains the right to designate another beneficiary. THIS IS A MAJOR ADVANTAGE OF QTPs.

Roth conversion

When the beneficiary/owner of a Trump account reaches age 18, he or she may elect to rollover or convert the account to a Roth IRA account. Reasons to do this include changing the account so that any distributions in the future (after a five-year waiting period) will be tax-free, the account owner will not be subject to the requirement to take required minimum distributions during his or her lifetime, and distributions to his or her successors after death will be income tax-free. The conversion can be done over several years to minimize or avoid any income tax liability for the conversion.

Up to a lifetime cap of $35,000 for a designated beneficiary, QTPs may be rolled over to a Roth IRA, subject to these requirements: (1) The QTP must have been maintained for the same designated beneficiary for at least 15 years; (2) The Roth IRA must be owned by the designated beneficiary of the QTP, not another account owner; (3) Amounts attributable to contributions to the QTP during the preceding five years, plus earnings on those contributions, aren’t eligible to roll over; (4) The rollover counts as part or all of the designated beneficiary’s annual Roth IRA contribution limit, and can’t exceed the designated beneficiary’s earned income for the year. A rollover from a QTP also reduces the limit for any other Roth IRA or traditional IRA contributions for the year.

The best way to make the transfer is a trustee-to-trustee transfer.

ABLE account rollovers

Achieving a Better Life Experience (ABLE) accounts are a way to grow tax-deferred savings for individuals who are blind or disabled under the social security disability insurance program or have a disability certification that was filed with the IRS for the tax year, and (effective 2026) the blindness or disability occurred before the individual reached age 46. The accounts are maintained by a state agency and an individual can only have one ABLE account.

Distributions from an ABLE for qualified disability expenses are tax-free, and qualified disability expenses are fairly liberally defined.

For 2026 the annual contribution is limited to $20,000 plus an additional contribution amount for disabled individuals who work equal to the lesser of the individual’s earned income or the federal poverty line of $15,650.

For more information, here is the URL for the Social Security website about ABLE accounts. https://secure.ssa.gov/poms.nsf/lnx/0501130740

Trump accounts aren’t eligible for rollovers to an ABLE account.

Distributions from a QTP may be rolled over tax free (including a trustee-to-trustee transfer) to an ABLE, provided they are transferred within 60 days to an ABLE of the same designated beneficiary or a member of the family of the designated beneficiary. The rollover is limited to the annual limit for contributions to an ABLE, and reduces the ability for other contributions to the ABLE account.

A member of the family includes the same individuals listed above for changing the beneficiary of a QTP.

Which is better?

A QTP is clearly a better vehicle for investing to provide for a student’s education than a Trump account.

QTPs have more investment flexibility than Trump accounts.

Distributions from QTPs to pay qualified education expenses are tax-free. Distributions from Trump accounts (converted to traditional IRAs), except capital recovery for certain contributions, are taxable. Distributions from traditional IRAs for qualified education expenses before age 59 1/2 aren’t subject to early distribution penalties.

QTPs can make limited distributions for elementary school and secondary school expenses. Trump accounts are prohibited from making distributions before age 18.

Potential gift-tax free contributions to QTPs are much greater than for Trump accounts, creating a bigger fund to grow tax-deferred and potentially tax-free to fund an expensive education. (Consider the election to have contributions to a QTP reported as gifts over a five-year period.)

The designated beneficiary of a QTP can be changed to another family member if excess funds remain after a designated beneficiary graduates from university or decides not to pursue higher education.

Other choices to avoid taxation for excess funds in a QTP include limited tax-free rollovers to a Roth IRA or an ABLE account.

Initially, a Trump account must be created to receive a $1,000 federal “gift” for qualifying children born during 2025-2028.

A Trump account can be a way to start building a retirement account for a child without requiring earned income for contributions.

When the child who is the beneficiary/owner of the Trump account reaches age 18, the account converts to a traditional IRA that is eligible to be converted to a Roth account, resulting in current taxable income and future tax-free growth.

Families that can afford it should consider having both QTPs and Trump accounts for their children. Remember, present interest gifts of contributions to QTPs and Trump accounts might exceed the $19,000 limit (for 2026) for the annual gift tax exclusion, but the lifetime estate and gift tax exemption for U.S. residents is $15 million for an individual.