How taxes, limits and control differ across 3 child savings accounts

Until 2025, parents saving for a child mostly chose between two kinds of accounts. A 529 plan pairs tax breaks with education spending rules. A custodial account under the Uniform Transfers to Minors Act or Uniform Gifts to Minors Act offers flexibility but fewer tax breaks. The One Big Beautiful Bill Act, signed July 4, 2025, added a third choice: the Trump Account.

That changes the math for many families. Each account handles three questions differently: how the money is taxed, what it can be spent on and who controls it. Those three trade-offs shape every comparison. An account with the strongest tax breaks can also carry the tightest spending rules. An account with no spending rules can hand a young adult full control of the balance.

Trump Accounts work like a special IRA for a child under 18 who has a Social Security number. The money goes into low-cost index funds that track U.S. equities. Contributions cannot start until July 4, 2026. Guidance from the IRS and Treasury is still pending. Some operational details remain unsettled.

State-sponsored 529 plans are built around education. Earnings grow tax-deferred, and qualified withdrawals for college costs and K-12 tuition are free of federal income tax. The account owner keeps control, not the child.

Custodial accounts take a different approach. The gift is irrevocable, the child legally owns the assets and a custodian manages them until the child reaches the age of majority. The money can be used for any purpose that benefits the child.

Comparing Trump Accounts vs. 529 plans vs. custodial accounts means looking past headline features. Contribution limits, gift tax rules, the kiddie tax and FAFSA treatment can all shift the outcome. The better fit depends on whether a family is saving for tuition, long-term growth or general support for a child.

The 10 slides that follow compare specific features of each account type. They cover eligibility, the federal deposit for U.S. citizen children born from 2025 through 2028, contribution rules, taxes, financial aid and control. They are not a ranking. Each slide explains one point of difference so families can match an account to a goal.

Illustration: Quartz

A Trump Account is a savings account for children under 18 that works like a special type of individual retirement account, or IRA. A child needs a Social Security number to qualify.

The accounts were created by the One Big Beautiful Bill Act, which was signed into law on July 4, 2025. That law added a federal option alongside the two account types families already used to save for children: the 529 plan and the custodial account.

Congress built the Trump Account on the framework of a retirement account rather than an education account. A 529 plan, by contrast, is a state-sponsored account whose tax-free uses center on college costs and K-12 tuition.

Timing is the first practical constraint. No contributions can go into a Trump Account before July 4, 2026, one year after the law was signed. A family that wants to begin saving for a child before that date has to use a different account in the meantime.

The investment menu is narrow. Money in a Trump Account can go only into low-cost index funds that track U.S. equities. Funds built around bonds or foreign stocks fall outside that limit. So do shares of individual companies.

That rule sets the account apart from a custodial account opened under the Uniform Transfers to Minors Act or the Uniform Gifts to Minors Act. A custodian on one of those accounts can hold stocks, funds and cash for the child.

An index fund that tracks U.S. equities moves with U.S. stock prices. That ties a Trump Account's value to the stock market. The account's rules offer no way to move the balance into bonds or cash while it stays in the account.

Federal rules are still being finalized. The IRS and Treasury have not finished issuing guidance on how Trump Accounts will operate. Operating details beyond the core features in the 2025 law depend on that guidance.

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The Treasury plans a one-time $1,000 federal deposit into the Trump Account of every U.S. citizen child born from Jan. 1, 2025, through Dec. 31, 2028. It is a single payment from the government, made once per eligible child rather than every year.

The birth window is the first test. It covers four birth years: 2025, 2026, 2027 and 2028. A child born on Dec. 31, 2024, falls outside it. So does a child born in 2029 or later, under the dates set so far.

An older child can still have a Trump Account, because the accounts are open to children under 18. That account would start without the federal money.

Citizenship is the second test. The deposit is limited to children who are U.S. citizens. Living in the U.S. does not by itself qualify a child.

The deposit also depends on the account itself. A Trump Account requires the child to have a Social Security number. Without one, there is no account to receive the $1,000.

The deposit is the federal government's contribution to an account that families and employers can also fund. For an eligible child, it is money that no relative or employer had to put in.

The $1,000 follows the same rules as any other money in the account. It goes into the account's U.S. stock index funds, and its value rises and falls with that market.

It cannot be withdrawn before the year the child turns 18. For a child born in 2025, that means the deposit remains in the account until at least 2043. For a child born in 2028, the earliest withdrawal year is 2046. After that, traditional IRA-style rules govern how it comes out.

Several details remain open. The IRS and Treasury are still issuing guidance on Trump Accounts. Until that guidance is complete, the exact steps for receiving the deposit and its timing are not yet spelled out.

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Families can put up to $5,000 a year into a Trump Account, and that cap is indexed for inflation. Employers can add up to $2,500 a year without the money counting as taxable income to the employee.

The $5,000 limit comes from the One Big Beautiful Bill Act, the 2025 law that created Trump Accounts. It is an annual cap, setting the most that can go into the account in a single year. A family that wants to save more for a child in one year has to use another account, such as a 529 plan or a custodial account.

Indexing ties the dollar amount to inflation. Instead of staying fixed at $5,000, the cap is adjusted over time. A limit frozen in dollars would buy less each year as prices rise. Indexing keeps the cap's real value from shrinking as the years pass. That means the figure families see quoted today may not match the limit in a later year.

The employer provision lets a company put money toward a worker's child. Up to $2,500 a year can arrive this way without the employee owing income tax on it as compensation. A cash bonus of the same size would ordinarily be taxed as wages. The employer amount equals half of the annual family limit.

That difference affects how much money reaches the account. A $2,500 bonus paid as wages shrinks once income tax is withheld, leaving less to deposit. The same amount sent as an employer contribution reaches the account without that income tax. The tax-free treatment separates this benefit from simply giving a worker extra pay to save on a child's behalf.

For working parents, the provision means a child's Trump Account can receive money from two sources: family contributions and deposits from a parent's employer. Pending IRS and Treasury guidance will determine how employers set up and report these deposits.

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A 529 plan is a state-sponsored investment account, authorized by Section 529 of the tax code, that lets savings grow tax-deferred. Withdrawals used for qualified education expenses, including college costs and K-12 tuition, come out free of federal income tax.

A family opens an account through a state's plan, puts money in and invests it for a future student. States sponsor the plans, while the tax rules come from federal law.

The tax benefit works in two stages. While the money stays in the account, investment earnings are not taxed from year to year. That is what tax-deferred means in practice. Gains can compound without an annual tax bill pulling money out.

The second stage arrives at withdrawal. If the money pays for a qualified expense, the earnings escape federal income tax. Growth goes untaxed along the way, and qualified withdrawals go untaxed at the end.

College costs are one qualified use. Tuition at elementary and secondary schools is another. That K-12 option carries an annual cap. It was $10,000 per year. The 2025 law raises it to $20,000 starting in 2026.

Money spent on anything else counts as a nonqualified withdrawal, and it costs more. The earnings portion is taxed as income. Those same earnings also carry a 10% penalty. The tax and penalty apply to earnings, not to the full amount withdrawn.

Leftover money has another exit. Unused 529 savings can be rolled into a Roth IRA in the beneficiary's name. That route has three limits. The lifetime cap is $35,000. The 529 account must have been open for at least 15 years. Each rollover also counts against the annual Roth IRA contribution limit, which restricts how much can move in a single year.

The rollover offers a use for money that never goes to education costs. Savings that meet the account-age and dollar conditions can move into retirement savings. That move avoids the income tax and 10% penalty a nonqualified withdrawal would trigger.

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Contributions to a 529 plan are treated as gifts to the beneficiary under federal gift tax rules. In 2025, each donor can give up to $19,000 within the annual exclusion, or front-load five years of gifts at once for a total of $95,000.

The annual exclusion is the amount one person can give another in a year without the gift becoming taxable for federal gift tax purposes. The $19,000 figure applies to 2025. Each donor has a separate exclusion for each recipient.

That structure lets several relatives contribute to the same child's 529 plan. Two parents can each give $19,000 in the same year, for a combined $38,000 in 2025. Grandparents, aunts and uncles each have their own $19,000 exclusion as well.

Front-loading lets a donor treat one large contribution as if it were spread evenly across five years. In 2025, a single donor can deposit $95,000 into a 529 plan at once and stay within the exclusion. Two parents who both front-load would reach a combined $190,000.

The trade-off is less room for later gifts. A front-loaded contribution draws on the donor's exclusion for that beneficiary in each of the five years it covers. Further gifts from that donor to the same child during that window can count against the exclusion.

The advantage is time. A large deposit made when a child is born has more years to stay invested before tuition bills arrive. A smaller amount spread over many years has less time to compound.

The gift rules sit alongside a feature that keeps large gifts flexible. Money in a 529 plan stays with the account owner rather than becoming the child's property. The owner can change the beneficiary to another family member.

That option gives a large gift a fallback if plans change. If one child earns a scholarship or does not go to college, a parent can redirect the account to a sibling. A grandparent who owns a 529 plan holds the same power to name a different grandchild.

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A 529 plan owned by a parent is reported on the FAFSA as a parental asset, and the aid formula assesses it at no more than 5.64% of its value. Assets that belong to the student face a higher assessment rate of 20%.

The account's owner, not its beneficiary, determines how the FAFSA classifies it. A parent can hold ownership while naming a child as the beneficiary. In that setup, the balance is reported with the parents' assets rather than the student's.

The difference shows up in simple arithmetic. A $10,000 parent-owned 529 adds at most $564 to the amount the formula counts toward paying for college. The same $10,000 held in the student's name and assessed at 20% would count as $2,000.

The maximum assessment on a parent-owned 529 is a little over one-quarter of the student-asset rate. The gap works out to $1,436 for every $10,000 saved. Larger balances widen it in proportion. At $50,000, the parent-owned maximum would be $2,820, compared with $10,000 under the 20% student rate.

UTMA and UGMA custodial accounts fall on the higher-rate side of that line. The child is the legal owner of a custodial account. The FAFSA therefore treats the money as the student's asset and applies the 20% rate.

Grandparents occupy a separate position. Since the 2024-25 FAFSA, a 529 plan owned by a grandparent has not counted on the form at all. A grandparent can open the account and name a grandchild as beneficiary. The balance then stays out of the assets the family reports.

The same savings can therefore land in three different places on the FAFSA, depending on who holds them. A grandparent-owned 529 is not reported. A parent-owned 529 is assessed at up to 5.64%. A custodial account is assessed at 20%.

The 5.64% figure is a ceiling, not a fixed charge on every dollar. The arithmetic above shows the most a parent-owned balance can count, not the amount every family will see.

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A custodial account is set up under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). It holds an irrevocable gift that legally belongs to the child. An adult custodian manages the money on the child's behalf.

The word irrevocable matters. Once money goes into a UTMA or UGMA account, the person who gave it cannot take it back. A parent who funds the account cannot later reclaim the money for household bills or move it to a sibling.

That ownership structure sets custodial accounts apart from 529 plans. A 529 owner keeps control of the account and can change the beneficiary to another family member. A custodial account has no such option. The assets belong to the child from the moment they are deposited.

The custodian runs the account day to day. That role includes picking investments and deciding when to spend. The custodian makes those calls without owning the assets.

Spending rules are broad. Money in a UTMA or UGMA account can go toward any purpose that benefits the child. There is no list of qualified expenses to follow. A 529 plan, by contrast, delivers its federal tax break only on qualified withdrawals, such as college costs and K-12 tuition.

The investment menu is wider, too. A custodial account can hold individual stocks, funds and cash. A Trump Account limits its investments to low-cost index funds that track U.S. equities. Owning shares of a single company is possible in a UTMA or UGMA account. So is keeping part of the balance in cash. Neither is an option in a Trump Account.

Timing is flexible as well. The custodian can spend the money for the child's benefit while the child is still a minor. A Trump Account bars withdrawals before the year the child turns 18.

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Investment income in a UTMA or UGMA custodial account falls under the kiddie tax. For 2025, the first $1,350 of a child's unearned income is tax-free. The next $1,350 is taxed at the child's rate, and anything above $2,700 is taxed at the parents' rate.

The rule targets a specific tax strategy. Without it, a family could shift large investments into a child's name. The earnings would then be taxed at the child's rate, which is usually lower. The tiers allow a modest amount of income at low or zero tax and send larger amounts back to the parents' rate.

Unearned income is money the child did not work for. In a custodial account, it typically comes from three places. Cash holdings pay interest, stocks and funds pay dividends, and selling an investment for more than its cost produces a capital gain. Wages from a job are earned income and are not counted in these tiers.

Because the child legally owns the account, its income is the child's income for tax purposes. A custodial account also offers no tax deferral. Taxable interest, dividends and realized gains count in the year the account receives them.

A simple example shows how the tiers stack. Suppose a custodial account produces $3,000 of unearned income in 2025. The first $1,350 is tax-free. The next $1,350 is taxed at the child's rate. The remaining $300 is taxed at the parents' rate.

An account that produces $1,350 or less of unearned income in 2025 owes no tax under these rules. Above $2,700, holding investments in the child's name no longer lowers the rate on that income.

The parents' income also shapes the result. Two children with identical custodial accounts can owe different amounts on income above $2,700 if their parents are in different tax brackets.

The IRS sets these thresholds by tax year, and the figures here apply to 2025.

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A custodial account passes to the child at the state's age of majority, usually 18 or 21, while a 529 plan stays under its owner's control. A Trump Account permits no withdrawals before the year the child turns 18.

Under the Uniform Transfers to Minors Act or the Uniform Gifts to Minors Act, the child is the legal owner from the first deposit. A custodian manages the money only until the child reaches the age of majority. Most states set that age at 18 or 21, and a few set it higher.

When that birthday arrives, the custodian's role ends. The young adult then decides how the money is spent, whether on tuition, a car or anything else. The gift is irrevocable. A parent cannot reclaim the funds or shift them to a sibling, either before or after the handover.

A 529 plan works the other way. The account owner, typically a parent or grandparent, holds control for the life of the account. The child is the beneficiary, not the owner. Reaching 18 or 21 gives the child no legal right to the money.

The owner decides when to withdraw and what the withdrawals pay for. If the original beneficiary does not need the money, the owner can name another family member instead. A custodial account offers no such switch, because the money already belongs to one child.

Trump Accounts follow a third model. They are opened for children under 18, and the money stays invested through childhood. No withdrawals are allowed before the calendar year in which the child turns 18.

From that year on, the account follows rules modeled on a traditional IRA. Federal regulators have not yet published full rules for the accounts. Details on how families will access the money in practice have not been released.

For a family with a high school senior, the three timelines lead to different results. A custodial account hands the young adult full authority at the state's age of majority. In states that set that age at 21, the custodian keeps managing the money for three more years after the child's 18th birthday. A 529 plan leaves every spending decision with the owner, regardless of the child's age. A Trump Account opens to withdrawals in the year the child turns 18, on IRA-style terms.