Education Planning

"Trump Accounts"

Introduced in OBBBA, these are government-funded investment accounts designed to help children build wealth from birth. Children born between January 1, 2025, and December 31, 2028, who are U.S. citizens and have a Social Security number, are eligible to receive a one-time $1,000 deposit from the U.S. Treasury to start the account. Children born outside these four calendar years are also eligible for an account, but they won't receive the $1,000 in government seed money.

Parents, grandparents, and other individuals can make after-tax contributions of up to a combined total of $5,000 per year to each account. Employers may also contribute up to $2,500 a year to accounts for their employees' dependents. Any employer contributions also count toward the overall $5,000 cap. The contributions grow tax-deferred until withdrawn. Account investment options are limited to mutual funds* or exchange-traded funds that track a qualified index, such as the S&P 500.

What's the education planning tie-in? Beginning the year the child turns 18, they can make penalty-free withdrawals for qualified educational costs. The child will incur regular income tax on earnings and tax-free contributions from the government/employers. Still, all after-tax contributions made by parents and others can be withdrawn tax-free. After age 18, the account functions similarly to a Traditional IRA, with continued tax-free growth and the ability to withdraw funds for any purpose starting at age 59-1/2.

Opening an account makes sense if your child is eligible for the $1,000 seed money. It may also be worth considering if your employer is willing to contribute to your child's account. Accounts can be opened beginning July 4, 2026. More guidance from the Treasury is expected before then.

Section 529 Plans

OBBBA changes make 529 plans** more versatile than ever for meeting college and other educational needs. Essentially, a 529 plan allows you to invest money with tax-deferred earnings for a child's education. When the time comes, you can take tax-free withdrawals to pay qualified education expenses. Additionally, up to $10,000 (lifetime limit per beneficiary) from these plans can be used to pay qualified student loans of the beneficiary and any siblings.

Starting in 2026, families can withdraw up to $20,000 per year from 529 plans for qualified K-12 expenses—up from the previous annual limit of $10,000. Qualified expenses now include not only tuition, but also curriculum and instructional materials (such as books or online courses), tutoring by licensed or expert instructors, dualenrollment fees, standardized test (e.g., SAT/ACT) fees, and educational therapies for students with disabilities. Distributions may now be used tax-free for training registered under the Workforce Innovation and Opportunity Act, apprenticeships, and state-licensed certifications (specific qualifications may apply). Qualified expenses include tuition, fees, books, supplies, and exam fees in career training and continuing education.

SMART MOVE: Reduce your taxable estate by front-loading five years' worth of gifts into a 529 plan in one year for a loved one's college education. Maximize your gift by giving up to the maximum annual tax-free gift limit of $19,000 (estimated) each year for up to five years, per donor, per recipient. Once you complete your gift, you can't make another gift to the same 529 plan for the five-year period.

Coverdell ESA

The Coverdell Education Savings Account (ESA) remains unchanged, with a $2,000 annual contribution limit per student. You qualify to make a full nondeductible contribution if you file jointly, but the limit phases out at a modified AGI of $190,000–$220,000. Limits for singles are half of that. Earnings are tax-deferred, and qualified withdrawals are tax-free. You have until the April 2026 tax filing deadline to make a

SMART MOVE: Calculate the value of the tax benefits to see who should claim education deductions and/or credits-you or your child.

Student Loans

OBBBA leaves undergraduate borrowing limits unchanged, with a federal loan cap of $27,000 over four years (or $31,000 for students taking longer to complete their degree). However, it sets firm caps on other loan types: Parent PLUS loans are capped at $20,000 per child, with a lifetime cap of $65,000 per student. Graduate PLUS loans are eliminated, leaving the Direct Unsubsidized Loan program as the sole source of Federal borrowing for graduate students – with pre-existing annual caps of $20,500 ($50,000 for professional degrees) and aggregate limits of $100,000 ($200,000 for professional students). The legislation also introduces a new combined lifetime borrowing cap of $257,600 across all Federal loan programs (excluding Parent PLUS loans) and makes forgiven student loan amounts taxable.

Student loan holders who qualify by income may still deduct up to $2,500 from their AGI in qualified education loan interest. This deduction phases out between a MAGI of $70,000-$85,000 for individuals and $140,000-$170,000 for married taxpayers filing jointly. Parents who help a child pay loans generally can't take the write-off. But if the child meets the MAGI qualifications and isn't eligible to be claimed as a dependent, they may claim the interest deduction.

Also, if your employer offers a qualified educational assistance program, you can use it to pay down up to $5,250 this year and later. Payments are excluded from your wages for income-tax purposes.

*Investors should read the prospectus and consider the investment objectives, risks, charges, and expenses of the fund before investing. Because mutual and exchange-traded fund values fluctuate, redeemed shares may be worth more or less than their investment. Past performance won't guarantee future results.

**Certain requirements may apply. Before investing, read the program offering statement and consider the investment objectives, risks, charges, and expenses associated with 529 plans. 529 Plans are not guaranteed by any state or federal agency. Consider whether the investor's or beneficiary's home state offers 529 plan-related tax or other benefits. Discuss 529 tax rules with your tax professional.