Lesson P202.3 · Personal Finance 202: Lead Your Family
Saving for kids' futures: college, trade school and Trump accounts
5-minute read · Figures for tax year 2026
Photo: JL Photographie / Pexels, Pexels License
The short answer
Put your own retirement first, then save for the kids. That's the order in Dave Ramsey's Baby Steps: invest 15% of household income for retirement (Baby Step 4), then save for your kids' college (Baby Step 5). A 529 plan's earnings aren't taxed by the federal government when spent on qualified education costs, and since July 2025 that includes more trade credential programs. Use free aid first, and know the total cost of any loan before anyone signs.
Retirement first, then the kids
Your kids will have other ways to pay for training: grants, scholarships, work, paid apprenticeships, the military. Your retirement depends mostly on what you save and invest, on top of Social Security. That's why your 15% comes ahead of the kids' fund.
Every path gets the same respect here: trade school, an apprenticeship, community college, the military or a four-year degree. The right one is the one that fits your kid and leads to work they can live on.
Example (made-up numbers). Lena and her husband, Sam, have no debt but the house and a full emergency fund, and they invest 15% for retirement. Then they put $50 a month into a 529 for each of their two kids. Their youngest is 3, so by 18 that's 15 years: $50 × 12 × 15 = $9,000 of deposits, before any growth.
Where to save: 529 plans and Trump accounts
| 529 plan | Trump account | |
|---|---|---|
| What it is | An education savings plan run by a state | A type of IRA for a child |
| Tax | Earnings aren't taxed by the federal government when spent on qualified education costs | Generally follows traditional IRA rules after the child turns 18 |
| Pays for | College, vocational school and, since July 2025, some credential programs | Long-term savings; money generally can't come out before January 1 of the year the child turns 18 |
| Money in | Contributions aren't deductible on your federal return | A $1,000 federal deposit for eligible children born 2025 through 2028; up to $5,000 a year in total from family and employers |
What the 2025 law added to 529s. Money can now pay for recognized credential programs: programs on your state's workforce training list and programs that lead to a credential such as a state or federal occupational license or a registered apprenticeship certificate. It covers required tuition, fees, books, supplies and equipment, plus testing fees and continuing education needed to get or keep the credential. State tax rules can differ from federal rules, so check your state's plan before you withdraw.
Trump accounts. Contributions started July 4, 2026. An employer can add up to $2,500 a year inside the $5,000 cap, and it isn't taxed as the employee's pay. Elect the account and the $1,000 deposit on IRS Form 4547.
Free aid first, then the full cost of any loan
- The FAFSA. The Free Application for Federal Student Aid can help a student get grants, scholarships, work-study and loans for college or career school. Never pay anyone to file it.
- Grants and scholarships. They aren't loans. Ask each school, your state and local groups what they offer, and apply for every one that fits.
- Short programs. Starting July 1, 2026, Pell Grants can pay for some short workforce programs, some as short as 8 weeks, in fields each state's governor picks. Pell Grants go to students with financial need.
- Apprenticeships. Apprentices earn a wage from day one, with increases as their skills grow, and finish with an industry-recognized credential that's good nationwide.
- The military. VA education benefits help veterans, service members and qualified family members pay for school and job training.
- Net price. A college's net price calculator, on its website, estimates what students like yours paid after grants and scholarships.
If your family is weighing loans, know the two kinds. Federal student loans have fixed interest rates and income-driven repayment plans. Private loans come from banks, credit unions and other lenders, some with variable rates, and repayment is generally less flexible. And be careful about co-signing: a co-signer may owe the full amount if the student doesn't pay.
Different approaches
Where respected teachers differ
Ramsey teaches paying for school with savings, scholarships, grants and work, with no student loans. Others accept limited federal loans for a degree or credential with strong pay. Before anyone signs, compare the total cost with the expected pay, and use free aid first.
Your Move
Do this week
- Check your own retirement first. If you're not yet investing 15%, write down why not yet and the date you expect to get there.
- If you are, open a 529 for each child and set a monthly automatic deposit, even a small one.
- Child born in 2025 through 2028? Elect the Trump account deposit on Form 4547.
- Got a teenager? Pick one school or program and run its net price calculator together.
Log it: Set up our kids' savings, or wrote down why not yet.
Common questions
Should I save for college or retirement first?
Retirement. In the Baby Steps, investing 15% for retirement (Step 4) comes before saving for college (Step 5).
Can a 529 pay for trade school?
It can pay qualified costs at an eligible vocational school, and since July 2025 for more recognized credential programs, such as training for a state occupational license. Confirm the program qualifies and check your state's tax rules first.
Is a Trump account a college fund?
It's a type of IRA for the child. Money generally can't come out before the year the child turns 18, and after that it generally follows traditional IRA rules. Read those rules before counting on it for school.
Watch out for
- Pressure to co-sign a private student loan. You may owe the whole balance.
- Anyone who charges to fill out the FAFSA. The first word in its name is Free.
- A program picked before anyone checked its total cost against the pay the work offers.
Free help
- FAFSA and federal student aid (USAGov)
- Apprenticeship.gov: find registered apprenticeships
- Net price calculators (Education Department)
- VA education and training benefits
Free practice
Lesson check
5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.
This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.
Sources
- Ramsey Solutions: The 7 Baby Steps
- IRS: 529 plans: questions and answers
- ScholarShare 529 (California's state plan): Expanded use of 529 funds
- IRS: Guidance on Trump accounts
- USAGov: Financial aid and student loans
- CFPB: Ways to pay for college or graduate school
- Education Department: Final rule creating Workforce Pell Grants
- Labor Department: Apprenticeship.gov career seekers
- VA: Education and training benefits
- Education Department: Net price
- FTC: Cosigning a Loan FAQs