A mom in Baby Step 5 (save for your children’s college fund) called The Ramsey Show with a question many parents are asking after the recent Trump Account launch. She and her husband already had 529 College Savings Plans open for their two daughters, ages 10 and 20, each holding about $1,500. Her question was: “We were debating whether to get an ESA or do the Trump Accounts, not the $1,000, but the regular investing. And I wanted to know your thoughts on which one we should get.” They clarified they wanted to know where they should be putting regular contributions, not whether or not they should open an account and accept the free $1,000.
Dave Ramsey’s answer was blunt. “I would just keep using your 529s.“ On the newer option, he added: “The Trump Accounts are all right, but largely it’s a Trump thump-my-chest thing… It’s not like it’s something really substantially earth-shatteringly new, other than it’s got a big T on it for him.”
A 529 savings plan offers specific advantages over a Trump Account when the money is used for education. However, Trump Accounts are still a valuable initiative that certainly can earn a place in a family’s broader financial toolkit.
Why the 529 Savings Plan Still Beat Trump Accounts Specifically for College Savings
Ramsey and co-host George Kamel are right. The reason comes down to three levers: tax treatment, contribution room, and control. Kamel put the tax point plainly: “The Trump Accounts are going to be taxable income. The 529, if used for college, is completely tax-free and it stays in your control. As far as the financial benefits, the 529 wins every time.”
Say a parent puts $300 a month into a 529 for 15 years and the account grows to roughly $90,000, with about $36,000 in investment gains. Pull that out for tuition, room, board, or books, and the gains come out with zero federal tax. Run the same dollars through a taxable brokerage account, and those gains get taxed at long-term capital gains rates when sold. For a family in the 15% capital gains bracket, that is roughly $5,400 handed to the IRS on the same investment performance.
On contribution room, Kamel drew the second line: “The 529 has way higher contribution limits. There’s really no practical limit compared to a Trump Account’s $5,000 a year. And the ESA is $2,000 a year.” Those figures are as Kamel stated them; always make sure to verify your specific contribution limits.
Ramsey also pushed back on the idea that a 529 locks you into bad funds: “The proper 529, the ones we like and recommend, will allow you to select the mutual fund to put in the 529, and if it’s underperforming, you could deselect it and select a different one. And just like you could do with a Roth IRA or something like that, same exact process.”
The 529 Only Makes Sense After the Parents Fund Their Own Retirement
Kamel was very direct that parents should prioritize their retirement savings first: “Parents need to be investing 15% into their own retirements first. Then save for college next, because that’s coming up a whole lot sooner than your kid’s retirement.”
Key Takeaways
For parents saving specifically for college, the 529 Savings Plan offers the strongest combination of tax-free growth, high contribution limits, and control. Trump Accounts and ESAs certainly have their place for investing in a child’s future, but Ramsey’s advice is straightforward: fund your own retirement first, then keep using the college account you already have.
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