WASHINGTON, DC – JANUARY 28: U.S. President Donald Trump arrives on stage before delivering remarks during the Treasury Department’s Trump Accounts Summit at Andrew W. Mellon Auditorium on January 28, 2026 in Washington, DC. “Trump Accounts” are a portion of recently passed tax and spending legislation where the federal government will deposit $1,000 into investment accounts for every child born between 2025 and 2028 once parents sign their children up while filing their income taxes. (Photo by Win McNamee/Getty Images)
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My friend, the progressive sharp economist Dean Baker writes if your adviser tells you to put money in a Trump Account instead of a 529 plan, fire them.
Dean is right to be suspicious. America’s tax-favored savings system is a junk drawer. We have 401(k)s, 403(b)s, 457s, IRAs, Roth IRAs, HSAs, FSAs, 529s, ABLE accounts and now Trump Accounts. Instead of funding public goods directly, we hand families a maze and call it choice.
But Dean’s conclusion is too blunt. A good adviser should not reflexively recommend Trump Accounts over 529 plans. A good adviser knows 529 plans are not easy, not neutral, and not designed for ordinary families. The better question is not whether 529s beat Trump Accounts in a spreadsheet. The better question is whether either account reaches the children who need assets most.
Best Arguments For 529s Are Not Good Enough
Dean’s best argument for 529 over Trump accounts is flexibility. A 529 plan is built for education, but parents can leak. (I have argued many times that leaking is not a good thing for savings accounts because of the math of compounding). Families can withdraw money for qualified education expenses tax-free. If they need the money for something else, they can still get it, though taxes and penalties apply to the earnings portion. About 40 percent of 529 plans leak. Maybe the family stanched an emergency, but the kid didn’t get education funds.
Who can disagree? The whole point of the baby accounts, with their $1,000 government contribution, is that they’re savings accounts. Money that can’t be touched can become a wealth-building tool. It is not an emergency tool.
In contrast, Trump Accounts are locked up before adulthood. Under IRS guidance, money in a Trump Account generally cannot be withdrawn before January 1 of the year the child turns 18, except for limited rollover, excess-contribution and death-related cases. During that growth period, investments are limited to eligible mutual funds or ETFs tracking broad U.S. equity indexes, with no leverage and fees capped at 0.1 percent.
Dean is also right about tax shelters favoring families with higher taxable incomes. The higher your tax bracket, the more valuable the shelter. That is the familiar American “hidden welfare state” at work. The U.S. is the exception, we aim to achieve social goals through the tax code. Important public policy delivered through deductions, deferrals and account rules that reward people who already have cash to save.
Savings Are Spotty And Sparse in 529s
A 529 plan is a tax-advantaged savings plan sponsored by a state, state agency or educational institution. That sounds straightforward until a parent has to choose one. Plans differ by fees, investment menus, state tax treatment and broker involvement. The SEC’s own investor bulletin tells savers to compare plans, costs, tax benefits, investment options and restrictions before opening an account.
That is not a small ask. New parents are not sitting around with Morningstar, a spreadsheet and a sleeping baby. They are tired, cash-constrained and trying to avoid buying the wrong car seat.
The strongest evidence shows that 529 tax incentives do not do much to expand take-up. A 2023 Public Finance Review study uses state-level data on tax benefits, account openings and assets under management, matched with demographic data and finds offering a state tax benefit does not significantly increase the percentage of children with an account or average balances.
The Government Accountability Office found in 2010, that less than 3 percent of families saved in a 529 or Coverdell account, and those families had about 25 times the median financial assets of families without such accounts. GAO also found that fees, investment options, tax benefits, plan variation and the difficulty of choosing a plan affected participation.
So yes, 529s are flexible. They are flexible for families who know they exist, have money to save and can navigate the menu.
Fees Charged in 529 and Trump “Baby” Accounts Matter
The 529 fee problem is not a rounding error. It is part of the design.
A 2022 study “Conflicting Incentives in the Management of 529 Plans,” finds not only do many 529 plans charge high fees but that incentives can conflict: states under budget pressure may accept plan terms that raise state fee revenue while giving program managers more room to pursue their own interests. Plans negotiated under those conditions had higher fees, weaker performance and no offsetting benefits.
That finding should stop the casual “shop around” advice cold. Shopping only works when prices are visible, products are comparable and parents have time. In 529 plans, the state may sponsor the plan, collect fees, offer tax benefits that nudge residents toward its own plan and outsource menu design to firms with their own revenue incentives.
That is not a market. It is a maze with toll booths and thick user manuals.
What Trump Accounts Get Right
Trump Accounts have defects. They are not a substitute for strong public universities. They are not a substitute for a child allowance. They are not real baby bonds. The name itself guarantees that half the country will hear policy and half will hear campaign rally.
But the design has two virtues 529 plans lack: a seed and a default.
Eligible children born from January 1, 2025, through December 31, 2028, can receive a one-time $1,000 pilot contribution if an election is made. Parents, relatives and others can contribute up to an aggregate $5,000 per year, with employer contributions capped at $2,500 and counted against that limit.
That $1,000 does not make a child rich. But for a child who would otherwise have no financial asset, it creates a starting point. The tax advantage is not the core value for low-income families. The seed is.
Trump Accounts also permit “qualified general contributions” from certain governments and 501(c)(3) charities to qualified classes of beneficiaries. That opens a door for city governments, philanthropies, employers and civic groups to supplement accounts for children in low-income communities.
Could this invite billionaire vanity? Of course. But 529s already invite affluent tax planning. At least this structure can route some outside money to children with no 529, no trust fund and no family balance sheet.
Trump “Baby” Accounts Are More Practical For Most People Than 529s
A fair question is: Why create another account when 529s already exist? The answer is that a policy that exists but does not reach ordinary families is not enough. A low-fee 529 may be best for college-bound children in families with stable savings, good information and liquidity.
Another question is also fair. Why not spend public money on public colleges, community colleges, child care and health care, not another account? I agree. My own baby bond was the University of California at Berkeley. I lived in public housing, relied on food stamps and had asthma care through Medicaid. Berkeley changed my life because it was a public institution, not because my family found a tax shelter.
Dean is right to scrutinize advisers. Though most are earnest and well-trained most are embedded in a product-selling system. (A fee-only fiduciary, unconnected to financial products, remains the safest guidance.) Fire the adviser who cannot explain tradeoffs.
Trump Accounts are not the answer to American inequality. But neither is telling parents to go comparison-shop through America’s 529 maze and calling that freedom.
