Trump Accounts, 529 Plans, and Estate Taxes: Breaking Down OBBBA
This is the third post in my series reviewing the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. In this post, I’ll highlight provisions including “Trump Accounts” for kids, expanded uses of 529 plans, and updates to the estate tax exemption. It’s important to know what exactly has changed, why this matters, and how it could impact your financial situation.
Estate Tax Exemptions Raised to $15M
The estate tax exemption is the amount of an individual’s estate that can be transferred to heirs tax-free upon death. For 2025, the exemption is $13.99 million per individual. For married couples, this is a combined $27.98 million. In 2018, this amount was $5.6 million, making it challenging for higher-net-worth individuals to pass tax-free assets down to the next generation.
Starting in 2026, OBBBA has raised this federal estate exemption to $15 million per person and $30 million per married couple. Before this change, this amount was supposed to be reduced by the end of 2025. This will provide relief for families with large estates who could have faced tax rates up to 40% on amounts above the exemption. It’s important to keep in mind that a future change in Congress could again reduce this exemption.
New Eligible Expenses for 529 Plans
The new law expands the types of expenses eligible for tax-free distributions from 529 plans by broadening the definition of “qualified higher education expenses”. Before these changes, the only K-12-related expenses eligible for 529 plans were limited to $10,000 per year of tuition paid to a primary or secondary school. The new law adds the following expenses for students enrolled in public, private, or religious schools:
- Expenses for the student’s curriculum, such as materials, textbooks, instructional materials, and online education materials.
- Costs for tutoring provided outside of the home.
- Fees for standardized tests such as AP exams and college admission exams.
- Dual enrollment fees for postsecondary programs (college courses taken in high school).
- Educational therapy costs for students with disabilities include occupational, behavioral, physical, and speech-language therapies.
Beginning in 2026, the annual limit for these expenses will increase from $10,000 to $20,000. OBBBA has also made changes to postsecondary qualified expenditures. The new law includes the following three types of eligible costs:
- Tuition, fees, books, and any other expenses required for enrolling in a postsecondary credential program.
- Fees for exams required to obtain or maintain the credential; and
- Fees for continuing education are necessary to maintain the credential.
Expanded Eligibility for HSA Contributions
Two key updates have expanded HSA eligibility. First, the definition of a High-Deductible Health Plan (HDHP) has been changed to include all “Bronze” and “Catastrophic” plans offered on federal or state ACA exchanges. Previously, not all of these plans met the official HDHP definition because they did not all satisfy both the minimum deductible and maximum out-of-pocket limit required for HSA eligibility.
Second, individuals can maintain HSA eligibility while covered by a direct primary care arrangement, in which a flat monthly or annual fee is paid to a primary care provider (capped at $150 per month for an individual or $300 per month for a family). These changes enable more people to contribute to HSAs, providing increased access to tax-advantaged healthcare savings tools.
Trump Accounts for Retirement Savings
OBBBA has created a new retirement savings vehicle for kids called “Trump Accounts”. Starting in July of 2026, this account can be opened and funded for any child with a Social Security number starting at birth up until the year they turn 18. Annual contributions are limited to $5,000 per year (indexed for inflation), and almost anyone can contribute to these accounts. This includes parents, grandparents, employers (up to $2,500 per year), Federal, state, local governments, and 501(c)(3) charitable organizations.
Before the child turns age 18, Trump Accounts will have investment restrictions. Funds must be placed in low-cost U.S. equity index funds. This is defined as the S&P 500 or any index composed primarily of U.S. equities. Sector or industry weighted indexes, such as technology stock funds, will not be permitted. Withdrawals before the beneficiary turns age 18 will not be allowed, aside from the exception of rolling the balance into an ABLE account if the child is disabled.
Once a beneficiary reaches age 18, the account will operate similarly to an IRA. There will be investment flexibility, and distributions will be subject to the early withdrawal penalty if taken before age 59 ½. Since these accounts may contain a mix of after-tax and pre-tax dollars, it is still unclear whether they can be rolled into a Traditional IRA or Roth IRA when the child turns 18. However, this could create planning opportunities surrounding Roth conversions while the child is in a low tax bracket. Other rules, such as Required Minimum Distributions (RMDs), will still apply once the beneficiary reaches age 75.
This new law is establishing a pilot program for children born in 2025, 2026, or 2027. Eligible children will receive a $1,000 credit from the government that will be contributed to these Trump Accounts. The mechanics of how parents will claim this credit are unclear, especially since these accounts will start in July 2026. However, children born in 2025 can claim this credit. Additional guidance should be released soon from Congress on this credit.
AMT Exemption Phaseout Thresholds
Alternative Minimum Tax (AMT) is a separate tax system that requires some individual taxpayers to calculate their tax liability twice. First, under ordinary income tax rules, then under the AMT tax rules. The individual will pay the highest amount. The AMT has fewer preferences and different exemptions and rates than the ordinary system.
The Tax Cuts and Jobs Act (TCJA) reduced the number of households subject to AMT by raising exemptions and phaseout thresholds, with only about 0.1% of households currently paying AMT. OBBBA makes these higher exemptions permanent but lowers the phaseout thresholds starting in 2026 to $500,000 for single filers and $1 million for joint filers (down from $626,350 and $1,252,700 today). In addition, the phaseout rate will double from 25% to 50%, creating a new “bump zone” where the effective marginal tax rate increases to 42%.
This means that certain taxpayers, particularly singles earning between $100,000 and $200,000 or couples with taxable income between $300,000 and $500,000, could face renewed AMT exposure, especially if they have large deductions for state and local taxes. For high earners, the bump zone will apply to single filers with AMT income between $500,000 and $676,200 and joint filers between $1 million and $1,274,000.
OBBBA’s new provisions offer opportunities to optimize savings, plan for education costs, and protect your estate. Whether it’s funding a Trump Account for a child, using 529 plans, or reviewing your estate strategy in light of the higher exemption, this is an ideal moment to review your plans. Working with a tax or financial professional can help ensure you make the most of these changes and position your family for long-term success.