Context:

With the introduction of President Donald Trump's new tax law, parents now have expanded options for utilizing 529 college savings plans, yet only a small percentage are taking advantage of this opportunity. The majority of parents continue to use traditional savings accounts for education-related expenses despite the significantly lower potential returns compared to 529 plans. The law allows for withdrawals for a wider range of educational expenses, including K-12 education-related costs, tutoring, test preparation, and dual enrollment courses, enabling students to be better prepared and potentially save on college costs. Additionally, starting in 2026, Trump Accounts will allow parents to invest up to $5,000 annually for their children, with the potential of a $1,000 initial government contribution for newborns under a pilot program. Experts suggest prioritizing 529 plans due to their tax-free growth and withdrawal benefits for education expenses, highlighting their long-term financial advantages over the newly introduced Trump Accounts.

Dive Deeper:

• President Donald Trump's new tax law expands the uses of 529 savings plans, enabling parents to utilize these funds for a broader range of educational expenses beyond college tuition, such as K-12 education, tutoring, and test preparation.

• Despite the potential benefits, only 10% of surveyed parents use 529 plans for their children's education, with most opting for traditional savings accounts that offer much lower returns.

• The new provisions also permit the use of 529 funds for dual enrollment courses, allowing students to earn college credits while still in high school, potentially reducing the time and cost needed to complete a college degree.

• In 2026, Trump Accounts will be introduced, allowing parents to invest after-tax money for their children under 18, with federal contributions for newborns as part of a pilot program, but these accounts have restrictions on withdrawals until the child reaches 18.

• Experts recommend prioritizing 529 plans over Trump Accounts due to the tax-free growth and withdrawals for educational expenses, and the option to transfer excess funds to a Roth IRA, offering long-term financial benefits.

• The potential growth of 529 plans, with contributions invested in a mix of stocks and bonds, significantly outpaces the minimal returns of traditional savings accounts, providing a strategic financial tool for education funding.

• The combination of expanded 529 uses and the future introduction of Trump Accounts offers parents new avenues for planning and investing in their children's educational and financial futures, though careful consideration of each option's benefits and restrictions is advised.