529 Savings Plan or Trump account? Dave Ramsey Calls Trump Accounts “Thump-My-Chest Thing”

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529 Savings Plan or Trump account? Dave Ramsey Calls Trump Accounts “Thump-My-Chest Thing”

Quick Learning

Dave Ramsey released the Trump Accounts as a branding exercise and told the caller to continue using his 529 plans to save for college.
529 education withdrawals are completely tax-free, while Trump account gains count as taxable income, costing the family about $5,400 more in taxes.
Parents must reach 15% of retirement contributions before funding any college account, as children can borrow for school but parents cannot borrow for retirement.
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Mom to Baby Step 5 (save for your children’s college fund) called The Ramsey Show with a question many parents are asking after the recent launch of Trump’s account. She and her husband already had 529 College Savings plans open for their two daughters, ages 10 and 20, each holding about $1,500. His question was: “We were talking that you get an ESA or make Trump Accounts, not $1,000, but regular investment. And I wanted to know your thoughts on which one we should get.” They clarify and want to know where they should be making regular contributionsnot whether or not they should open an account and receive the free $1,000.

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Dave Ramsey’s answer was vague. “I would continue to use your 529s.“ In the new election, he added: “Trump’s accounts are correct, but mostly the Trump-thump-my-chest thing… It’s not like it’s a really shocking new thing in the world, except it has a big T in it.”

A 529 savings plan offers some benefits over a Trump Account when the money is used for education. However, Trump Accounts are still an important program that can earn a place in a family’s comprehensive financial toolkit.

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Why 529 Savings Plans Keep Hitting Trump’s College Savings Accounts Directly

Ramsey and his partner George Kamel are right. The reason comes down to it three strings: tax administration, contribution room, and control. Kamel put the tax point clearly: “Trump accounts will be taxable income. 529, if used for college completely taxed and it stays in your control. In terms of financial benefits, the 529 always wins.”

Say a parent puts $300 a month into a 529 for 15 years and the account grows to about $90,000, with about $36,000 in investment gains. Take that out for tuition, room, board, or books, and the benefits come with it zero federal tax. Spend those same dollars in a taxable brokerage account, and those gains are taxed at long-term capital gains rates when sold. For a family in the 15% capital gains bracket, that’s about $5,400 awarded by the IRS for the same investment performance.

In the donation room, Kamel drew a second line: “A 529 has very high contribution limits. There really isn’t a limit in effect compared to Trump’s $5,000 a year account. And the ESA is $2,000 a year.” Those figures are as Kamel said; always ensure that you confirm the specific limits of your contribution.

Ramsey also debunked the idea that a 529 locks you into bad debt: “A proper 529, the one we love and recommend, will let you choose a mutual fund to put into the 529, and if it’s not working well, you can remove it and choose a different one. And just like you would with a Roth IRA or something like that, it’s the exact same process.”

A 529 Only Makes Sense After Parents Pay For Their Own Retirement

Kamel was very clear that parents should prioritize their retirement savings first: “Parents must invest 15% of their retirement savings first. And then save for college next, because that’s coming up a lot faster than your kid’s retirement.”

Key Takeaways

For parents saving specifically for college, a 529 Savings Plan offers a strong combination of tax-free growth, high contribution limits, and control. Trump accounts and ESAs have their place for investing in a child’s future, but Ramsey’s advice is straightforward: fund your retirement first, then continue using the college account you already have.

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