If a baby was born into your family between 2025 and 2028, you now have three very different ways to turn a small saving habit into a real sum by the time that child grows up. The new Trump Account, the long-standing 529 education plan, and a custodial Roth IRA (a retirement account an adult opens and manages on behalf of a child) all grow money. But they answer different questions and follow different rules. Here is a plain-English, numbers-first comparison so you can pick the right one, or use more than one, without guessing.
Two quick terms first. “Tax-deferred” means you do not pay tax on the growth each year, but tax may apply later when the money comes out. “Tax-free” means qualifying withdrawals are never taxed at all. That difference is a big part of the story below.
The three accounts in plain English
Trump Account (the new one)
Congress created Trump Accounts in the 2025 tax law (the One Big Beautiful Bill Act) as a new type of account under Section 530A of the tax code. The headline feature: an eligible child born after December 31, 2024 and before January 1, 2029 gets a one-time $1,000 federal seed deposit, as long as a parent makes the election and the child is a US citizen with a valid Social Security number. There is no income test to get the seed.
Families and others can add up to $5,000 combined per year (a separate employer contribution of up to $2,500 does not count against that $5,000). That $5,000 cap is fixed law for 2026 and 2027; the IRS notice says it rises with inflation after 2027, but the exact future number is not published yet. The money is invested in a low-cost fund that tracks a broad US stock index, and growth is tax-deferred. Two timing rules matter: contributions cannot be made before July 4, 2026, and no money can be withdrawn before the year the child turns 18. After 18, the account follows traditional-IRA rules. For a deeper walkthrough of the seed and how to claim it, see our Trump Accounts explainer.
529 plan (the education specialist)
A 529 is a state-sponsored education savings account. It has no federal seed and no earned-income requirement, so you can open one for a newborn on day one. Its superpower is tax treatment: growth is completely tax-free when the money pays for qualified education expenses like tuition, fees, and books. Many states also give a state income-tax deduction or credit for what you put in, though this varies widely by state.
The catch is the “education” part. If you take money out for something that is not a qualified education expense, the earnings portion is taxed as income plus a 10% federal additional tax. Your original contributions are never taxed or penalized, because you put them in with after-tax dollars. Contribution room is very high, often several hundred thousand dollars in total per beneficiary depending on the state.
Custodial Roth IRA (the one with a hard gate)
A custodial Roth IRA is a Roth retirement account opened for a minor and managed by an adult until the child reaches the age of majority. Growth and qualified withdrawals are 100% tax-free, which sounds ideal for an 18-year runway.
Here is the gate you cannot get around: the child must have their own earned income (real wages from a job) to contribute. A newborn has none, so a custodial Roth cannot be funded at all until the child actually earns money, often as a teenager. When they do, the most you can put in is the lesser of their earned income or the annual IRA limit, which is $7,500 for 2026 for anyone under age 50. So if a 16-year-old earns $3,000 bagging groceries, the ceiling is $3,000 that year, not $7,500.
Side-by-side comparison
| Feature | Trump Account | 529 plan | Custodial Roth IRA |
|---|---|---|---|
| Federal seed | $1,000 (births 2025 to 2028) | None | None |
| Annual contribution cap | $5,000 (2026 and 2027) | Very high, set by the state | Lesser of earned income or $7,500 (2026) |
| Growth tax treatment | Tax-deferred | Tax-free for qualified education | Tax-free |
| Main allowed use | General, IRA rules after 18 | Qualified education | Retirement (flexible Roth rules) |
| Earned income required | No | No | Yes (hard blocker for a baby) |
What $1,000 plus $2,000 a year could grow to
Numbers make this concrete. The example below is illustrative only. It assumes a steady 7% nominal annual return, which real stock markets do not deliver smoothly; some years are up a lot and some years lose money. Treat it as a shape, not a promise.
Take the Trump Account case: the $1,000 federal seed, plus $2,000 of family contributions added at the end of each year, growing at an assumed 7% for 18 years. The formula is checkable:
Future value = 1000 x (1.07^18) + 2000 x ((1.07^18 - 1) / 0.07)
With 1.07^18 = 3.379932, that works out to:
- The $1,000 seed grows to about $3,380.
- The $2,000-a-year contributions grow to about $67,998.
- Total: about $71,378.
Of that $71,378, your family actually contributed $36,000 over 18 years; the $1,000 seed was free government money, and the remaining roughly $34,378 is growth. Want to test your own seed, monthly amount, and return rate? Run it through our compound interest calculator. To understand why the later years do so much of the heavy lifting, our compound interest guide and the Rule of 72 both help.
The same $37,000 of contributions would grow to a similar figure in a 529 or a custodial Roth at the same 7%, because compounding does not care about the label on the account. What differs is the tax and use rules at the end, and whether you can even open the account for a newborn.
So which one grows a newborn’s money the most?
For a baby specifically, the honest ranking is about access, not just returns:
- The custodial Roth is out of reach at birth, full stop, because there is no earned income. It becomes a strong option once the child has a real job, and its tax-free retirement growth is hard to beat then.
- Between the Trump Account and the 529, the Trump Account starts you $1,000 ahead for free and is flexible in use, while the 529 wins on pure tax treatment if the goal is college. Neither is universally “best.”
- Many families use both: take the free $1,000 Trump Account seed, and direct education savings into a 529 for the tax-free treatment. If you want to weigh a Roth for yourself in parallel, our Roth IRA guide covers the basics.
FAQ
Can I open all three accounts for the same child?
You can open a Trump Account and a 529 for a newborn today. The custodial Roth has to wait until the child has earned income. Nothing in the rules stops you from using more than one account type at once.
When can the child actually touch the money?
A Trump Account allows no withdrawals before the year the child turns 18. A 529 has no age lock, but non-education withdrawals get taxed plus a 10% penalty on the earnings. A custodial Roth transfers to the child at the age of majority set by your state, and Roth rules then govern withdrawals.
Is the $1,000 Trump Account seed really free, and is it taxable?
Yes, it is a government contribution of $1,000 for eligible children born 2025 through 2028, paid when a parent makes the election. It is not something you repay. It grows tax-deferred inside the account like the rest of the balance.
What happens to a 529 if my child skips college?
The account does not vanish. You can change the beneficiary to another family member, use it for trade school or apprenticeships, or withdraw it. A non-qualified withdrawal only taxes and penalizes the earnings portion, not your original contributions.
Sources
Internal Revenue Service, Trump Accounts page (irs.gov/trumpaccounts), supports the $1,000 pilot-program seed for children born January 1, 2025 through December 31, 2028; accessed August 10, 2026. IRS Notice 2025-68 (irs.gov/pub/irs-drop/n-25-68.pdf) supports the $5,000 aggregate annual contribution limit for 2026 and 2027, the July 4, 2026 earliest-contribution date, and the rule that no distributions are allowed before the year the beneficiary turns 18; accessed August 10, 2026. IRS newsroom release on 2026 retirement limits (Notice 2025-67) supports the $7,500 IRA and Roth IRA contribution limit for those under age 50; accessed August 10, 2026. IRS Retirement Topics - IRA Contribution Limits supports the rule that a contribution cannot exceed your taxable compensation for the year, the earned-income gate that blocks funding a custodial Roth for a newborn; accessed August 10, 2026. IRS Tax Topic 313, Qualified Tuition Programs, supports that 529 distributions are not taxable when used for qualified higher education expenses; accessed August 10, 2026. IRS Publication 970, Tax Benefits for Education, supports the 10% additional tax on the earnings portion of non-qualified 529 distributions; accessed August 10, 2026.
