Trump Account vs 529 vs Custodial Roth vs UTMA: Where a Child's First $5,000 Should Go
A Trump Account, a 529, a custodial Roth and a UTMA can all hold a child's money, but they tax it, lock it and hand it over very differently. Here's how they compare and the order that usually makes sense.
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📐 Figures verified Sep 27, 2026 against Public Law 119-21 (section 70204 and the 529 changes), the IRS Trump Accounts pages and Form 4547, IRS release IR-2025-111, Publication 970 and Rev. Proc. 2025-32. Growth in the example is an illustrative 6% a year. How we check numbers →
Start with free money: for a child born from 2025 through 2028, elect the $1,000 Trump Account seed. For college or K-12, a 529 comes next. If your child has earned income, a custodial Roth IRA gives the most tax-free growth per dollar. Trump Account contributions fit long-term goals, and a UTMA is the most flexible but becomes the child's at adulthood.
Numbers That Matter
| Figure | Amount | Source | Verified |
|---|---|---|---|
| Trump Account contribution cap | $5,000 a year, family and employer money combined | P.L. 119-21 §70204 | Sep 27, 2026 |
| Employer Trump Account money excluded from the employee's income | $2,500 a year | P.L. 119-21 §70204 | Sep 27, 2026 |
| Trump Account seed | $1,000 for U.S.-citizen children born 2025 through 2028 | IRS Form 4547 | Sep 27, 2026 |
| Trump Account withdrawals | None before the year the child turns 18; then traditional IRA rules | IRS | Sep 27, 2026 |
| IRA limit for 2026 (custodial Roth) | $7,500, or the child's earned income if less | IRS IR-2025-111 | Sep 27, 2026 |
| 529 withdrawals for K-12 | Up to $20,000 a year per student from 2026 | P.L. 119-21 | Sep 27, 2026 |
| 529-to-Roth IRA rollover | $35,000 lifetime per beneficiary, with conditions | IRS Pub. 970 | Sep 27, 2026 |
| Gift tax annual exclusion, 2026 | $19,000 per recipient | Rev. Proc. 2025-32 | Sep 27, 2026 |
| Kiddie tax threshold, 2026 | Unearned income above $2,700 | Rev. Proc. 2025-32 | Sep 27, 2026 |
Four Accounts Side by Side
| Trump Account | 529 plan | Custodial Roth IRA | UTMA/UGMA | |
|---|---|---|---|---|
| Yearly limit | $5,000 (family + employer) | None federally; gift rules apply | $7,500 or earned income, if less | None; gift rules apply |
| Tax on growth | Deferred; earnings taxed when withdrawn | Tax-free for qualified education | Tax-free if the rules are met | Taxed yearly, kiddie tax above $2,700 |
| Getting money out | From the year the child turns 18 | Any time; earnings taxed plus 10% if not for education | Contributions any time; earnings later | Any use that benefits the child |
| Who controls it later | The child, as a traditional IRA | The owner, usually a parent | The child, at the state's age of majority | The child, at 18 or 21 depending on the state |
| Investments | U.S. stock index funds, fees of 0.1% or less | The plan's menu | Almost anything | Almost anything |
The Order for a Child's First $5,000
- Claim the seed. A child born from 2025 through 2028 can get $1,000 from the Treasury in a Trump Account. You elect it on Form 4547, and you don't have to contribute anything.
- Use earned income first. If your child earns money from a job or documented self-employment, a custodial Roth IRA up to that amount is the most valuable account on the list. A parent can supply the dollars.
- Then a 529 for school. Tax-free for qualified education, often deductible on your state return, and light on financial aid.
- Then Trump Account contributions for a long-term, retirement-style account when there is no earned income, plus any employer money you can get.
- A UTMA last, for money you want the child to be able to use for anything, and only if you're comfortable handing it over at 18 or 21.
Trump Accounts: Great for Free Money
A Trump Account is a traditional IRA for a child. The $1,000 seed and employer contributions are free money. Family contributions build basis, which comes back untaxed, but the growth is taxed as ordinary income when it comes out, and withdrawals follow traditional IRA rules from the year the child turns 18, including the 10% early-withdrawal penalty unless an exception, such as higher education, applies. It isn't a 529, so school withdrawals aren't tax-free. The Trump Accounts guide covers opening one and the investment rules.
529 Plans After the 2025 Law
Public Law 119-21 doubled what a 529 can pay for K-12 to $20,000 a year per student starting in 2026 and widened what counts, adding costs like tutoring, testing fees and learning materials, plus postsecondary credential programs. Not every state follows the federal changes for its own taxes, so check before a K-12 withdrawal. Unused money can move to the beneficiary's Roth IRA, up to $35,000 over a lifetime, if the 529 has been open at least 15 years and the rollover fits within the year's IRA limit. Grandparents and parents can also front-load five years of gift exclusions, $95,000 at 2026 levels, by electing it on a gift tax return.
Custodial Roth IRAs: The Best Dollars, If the Child Works
A custodial Roth needs earned income: wages, or self-employment such as babysitting or lawn mowing that you document. Contributions can't exceed that income or $7,500 for 2026, whichever is less. The contributions can come back out any time without tax or penalty, and decades of growth can be tax-free later. For a teenager with a summer job, few accounts come close.
UTMA and UGMA: Flexible, With Strings
A custodial UTMA or UGMA account is an irrevocable gift. The money can go toward anything that benefits the child, but the child takes control at 18 or 21, depending on your state, and can spend it however they like. Investment income is taxed each year, and under the kiddie tax, unearned income above $2,700 in 2026 is taxed at the parents' rate.
Financial Aid Effects
On the FAFSA, a parent-owned 529 counts as a parent asset, assessed at up to about 5.64%. A UTMA counts as the student's asset, at 20%. Retirement accounts, including Roth IRAs, aren't reported as assets, and 529s owned by grandparents no longer appear on the form. Trump Accounts are IRAs, but look for Education Department guidance before counting on how they're treated.
Worked Example: $5,000 for Two Kids
- Mia, 10, in a 529: $5,000 growing at 6% becomes about $7,969.24 by 18, all tax-free for college. As a parent asset, it trims aid eligibility by at most about $449.47 a year.
- The same money in a UTMA: the same $7,969.24, but as Mia's asset it can cut aid eligibility by about $1,593.85 a year, and it's hers to spend at 18 or 21.
- In a Trump Account: the same growth, but the $2,969.24 of earnings is taxable when withdrawn, and nothing can come out before the year she turns 18.
- If Mia earns $5,000 babysitting and the family funds a custodial Roth, the account could reach about $92,100 by age 60 at the same 6%, tax-free under current rules, and the $5,000 itself can come out any time.
- Leo, born in 2026: the $1,000 seed alone could grow to about $2,854.34 by his 18th birthday.
Growth of 6% a year is illustrative, not a forecast; aid effects use the standard asset rates. The Garcias are an illustration.
Decision Rules
If this, then that
- If your child was born from 2025 through 2028 → file Form 4547 for the $1,000 seed, even if you add nothing else.
- If your child has earned income → fund a custodial Roth IRA first, up to that income.
- If college or private school is the goal → use a 529, and check your state's deduction and its K-12 rules.
- If your employer offers Trump Account contributions → take them; up to $2,500 a year is excluded from your income.
- If you want to stay in control of the money → choose a 529 over a UTMA or Trump Account.
Mistakes to avoid
- Missing the Trump Account seed election.
- Funding a custodial Roth without real, documented earned income.
- Saving for college in a UTMA and losing aid eligibility.
- Assuming your state follows the new federal 529 K-12 rules.
- Treating a Trump Account like a 529; school withdrawals aren't tax-free.
Related: the Trump Accounts guide covers opening and investing; the best 529 plans compares plans and state deductions; tax-advantaged accounts explains the wider family of accounts; and Roth IRA vs 401(k) covers how Roth money works. More guides are in the Investing hub.