Trump Accounts to Vie With Tested Saving Plans for Employer Cash

“Trump Accounts” forged under the president’s budget package will encounter stiff competition from more established savings programs as employers weigh how to contribute to funds as a benefit for workers with children.

The federal government will foot the bill on $1,000 seed contributions to the tax-deferred Trump Accounts of children born between 2025 and 2028, and employers can contribute up to $2,500 annually.

The Trump-branded accounts have built-in flexibility and can be used for a range of expenses, including education, starting a business, or first-time home purchases. But compared to traditional state-sponsored 529 tuition assistance programs, the accounts’ narrow investment options, employer contributions capped at $2,500, and mandatory taxes on withdrawals may make these new options less appealing to workers.

“Employers have to be in tune with their workers’ needs,” said Caroline Pieper, an employee benefits associate at Seyfarth Shaw LLP in Chicago. “Half the struggle is getting employees to set up an account in the first place, and now there’s a decision about which account to choose.”

Only about 15% of companies with 500 or more workers contribute to voluntary 529 accounts right now, according to the Employee Benefit Research Institute. Any money saved is better than none, but the compounded loss of future income by choosing the wrong savings vehicle for contributions can hurt families saving for the future.

The $1,000 seed money could be enough of an enticement for workers to choose Trump Accounts over a 529 account and for employers to place their contributions in the accounts their workers are favoring, said Greg Leiserson, a former US Treasury official and Obama administration White House economic adviser.

That starter money and annual contributions from employers would be tax-free. But qualified 529 withdrawals already are tax-free, without the restricted growth Trump Accounts could introduce to the equation, Leiserson, now a senior fellow at the New York University School of Law, added.

Whereas 529s can be actively managed funds with age-based portfolios, Trump Accounts in the new legislation can only be invested in a single US equity index fund.

“It’s functionally a kid-friendly 401(k), and I’m not sure how that fits in to an employer’s more broadly defined deferred compensation strategy,” Leiserson said. “On the merits, employers should look at these extremely skeptically.”

Generational Savings

The Trump White House is touting the new tax-deferred savings strategy as a reinvention of baby bonds Democratic lawmakers favored during the Obama years.

Trump Accounts “will afford a generation of children the chance to experience the miracle of compounded growth and set them on a course for prosperity from the very beginning,” the administration said in a statement shortly after the president signed the Big Beautiful Bill Act into law July 4.

While the accounts also apply tax deferrals to expenses that occur when children shift to adulthood, like buying a home or starting a business, it’s the educational expense component that could compete with 529s.

State-sponsored qualified tuition assistance programs let parents set money aside for their childrens’ college education, often without paying any tax on interest earned. Most states allow employers to make deferral contributions right out of an account owner’s paycheck, and many companies are choosing to add on contributions of their own as an added worker benefit.

There’s reason to believe that employers with extra cash won’t choose to contribute to college savings at all, since a dependent’s tuition costs are one or more steps removed from an enrolled worker, said Leiserson. Salary boosts, annual bonuses, or 401(k) contributions are simpler.

“If I can give my worker $1,000 in cash or give some middleman $1,000 and they’ll give my employee the $1,000, it makes sense to just give it to them directly,” he said.

Trump Name

Trump’s branding could serve to steer employee and employer behavior, as the current administration has seemed willing to reward companies for their support in an unprecedented way, Leiserson said. This could lead employers to opt for accounts bearing the president’s name.

Trump’s supporters could choose to open Trump Accounts instead of 529s for the same reason, he said.

Most states offer an income tax deduction on personal contributions, but at least eight now give employers a tax credit on contributions they add, according to the College Savings Plans Network. Employer contributions to Trump Accounts won’t be counted as income on withdrawals. There are no federal income tax credits for 529s or Trump Accounts.

Since 529 investment menus offer a wider range of options, and most annual caps on contributions are in the hundreds of thousands of dollars compared to $5,000 in Trump Accounts, 529s are often better suited to meeting post-secondary education needs, said Alex Muresianu, a senior policy analyst at the Tax Foundation.

Employer contributions count toward the $5,000 annual maximum for Trump Accounts.

With the addition of these accounts, employers and their workers have about a dozen different tax-deferred savings strategies to choose from, many of which are in competition with each other.

“When you look at the number of accounts we have, we shouldn’t just add another to the pile,” Muresianu said. “We should focus policy on meaningful consolidation rather than choosing between two or more.”