New tax and spending legislation signed into law in 2025 by President Trump brings major changes to how families save, spend, and plan for their children. Whether you're raising kids, saving for college, or managing student loans, here are 4 key updates that could impact your finances.
1. The Trump Account for minors
To help promote long-term financial security, the new law establishes federally backed investment accounts for every American baby born between January 1, 2025, and December 31, 2028. The accounts became available in 2026. Learn more about Trump Accounts: Trump Accounts: A new way to save for kids and How to use Trump Accounts to save for kids
Key features:
- $1,000 federal seed deposit. Each eligible newborn will receive a one-time government contribution of $1,000 to start the account.
- Annual private contributions up to $5,000. Parents, relatives, employers, and others can also contribute to the account. There is a $5,000 contribution limit per year per child. Starting in 2028, this amount is indexed for inflation.
- Tax-deferred growth potential. Like a traditional IRA, any investment earnings grow tax-deferred.
- Market-based investing. Money will be invested in a diversified index of US stocks, offering potential for long-term growth.
- Access around age 18. Starting January 1 of the year the beneficiary turns 18, most Trump Account restrictions end and standard traditional IRA rules generally apply. Depending on the account agreement, the account may remain a Trump Account (but functions like a traditional IRA) or be transferred to a traditional IRA. At that time, withdrawals will be subject to standard traditional IRA rules.
- Generally no withdrawals prior to age 18.
- Rollovers to ABLE accounts at age 17 will be allowed for eligible children with disabilities.
Visit Fidelity’s guide to stay informed about Trump Accounts: A new way to start investing for your child’s future
Want to explore more ways to save for a child’s future? Check out our guide to Saving & Investing for a Child, including custodial accounts, IRAs, 529 plans, ABLE accounts, and more.
Things to keep in mind:
- No gift tax return will be required for contributions to Trump Accounts, if some conditions are met. Contributions must be made before the year the beneficiary turns 18, and the donor’s total gifts to that child for the year, including the Trump Account contribution, must not exceed the annual gift tax exclusion amount.
- As with any investment account, returns are not guaranteed and will depend on market performance.
- Families should consider their overall financial goals and risk tolerance when contributing to or planning around these accounts.
2. The Child Tax Credit is still here—but smaller for some
The Child Tax Credit (CTC) received a few important changes that could affect how much families receive at tax time.
- The maximum credit remains at $2,200 per qualifying child in 2026 and is indexed for inflation each year. To qualify, your child must be under 17 at the end of the tax year.
- The refundable portion is capped at $1,700 per child for 2026, also indexed for inflation.
- Income phase-out thresholds are permanent and not adjusted for inflation. The phase-out thresholds are $400,000 for joint filers and $200,000 for all others.
What this means for you: The permanently higher income thresholds may help middle- and upper-middle-income families benefit from the credit unless their income crosses the threshold.
3. 529 plans just got more flexible
Families saving for education will welcome the expanded use of 529 savings plans under the recently passed federal legislation, which now allows 529 payments for an even broader range of educational needs. Per federal law, 529 plans may be used to pay for additional costs related to K-12 education (such as qualifying tutoring services, fees for AP tests, and qualifying educational therapies) and for tuition, fees, books, supplies, and equipment required for the enrollment or attendance in a recognized postsecondary credential program. Accordingly, families with various K-12 related expenses and families with children seeking certain post-secondary education different from traditional college can now all benefit from the tax savings of a 529 plan. Additionally, beginning January 1, 2026, the aggregate of expenses in connection with enrollment or attendance at public, private, and religious elementary and secondary educational institutions will increase to $20,000 per calendar year (from all accounts established for the same beneficiary).
Contribution rules:
- The new law does not impose new federal contribution limits, so families can continue to contribute to 529 plans, subject to applicable federal gift-tax rules. For example, contributions up to the annual gift-tax exclusion amount ($19,000 per individual, per beneficiary in 2026) generally have no gift-tax reporting requirements.
- While the new tax law expands the list of federally qualified 529 expenses, each state administers its own 529 plan, and not all states automatically conform to federal rules. This has historically led to confusion: a withdrawal might be tax-free at the federal level but taxable at the state level if the state hasn’t adopted the same definition of qualified expenses.
Though states were encouraged to align with the new law, families should check with their state’s 529 plan administrator to confirm which expenses qualify for state tax benefits.
What this means for you: The new law opens the door to more flexible, inclusive education savings—but it’s still up to families to understand how their state’s rules apply. Be aware that a withdrawal considered tax-free federally might still be taxable at the state level if your state hasn’t adopted the new federal definitions.
4. Student aid and loan rules are changing
The new law introduces sweeping changes to federal student aid and loan programs—changes that could significantly affect how students qualify for aid, how much they can borrow, and how they repay their loans.
What to know about borrowing: Aid eligibility tightened
- The law redefines eligibility for federal student aid, including Pell Grants. Students with a Student Aid Index (SAI) above a certain threshold may no longer qualify, even if their income is low.
- Students who receive a full scholarship from their college or university will no longer be eligible for Pell Grants.
New loan limits effective July 1, 2026
Federal Direct Loans now have borrowing caps tied to the median cost of the program minus Pell Grants.
- $20,500 per year for graduate school
- $50,000 per year for professional programs (e.g., med school)
- $100,000 lifetime cap for grad school borrowing
- $200,000 lifetime cap for professional programs
- $20,000 per year Parent PLUS loans and $65,000 lifetime (per child)
- $257,500 maximum for all federal undergraduate and graduate/professional borrowing
The goal is to reduce over-borrowing, but this may limit access for students who rely heavily on federal loans to cover tuition and living expenses. Note also that the Grad PLUS loan program was closed to new borrowers as of July 2026.
Managing student debt: Repayment plans overhauled
The law eliminates several existing income-driven repayment (IDR) plans, including SAVE, PAYE, and ICR.
Starting July 1, 2026, new borrowers will choose between:
- A Standard Repayment Plan (fixed payments over 10–25 years).
- A new Repayment Assistance Plan (RAP), which allows borrowers to pay 1% to 10% of their adjusted gross income, depending on income bracket, for up to 30 years.
Current borrowers must transition to the Standard Plan or the RAP.
Deferment and forbearance restricted
Beginning July 1, 2027, new federal loans disbursed on or after July 1, 2027 will no longer qualify for:
- Economic hardship deferments. Currently borrowers may qualify if they receive public assistance, earn below 150% of the federal poverty guideline, or serve in the Peace Corps.
- Unemployment deferments
- Forbearance will be limited to 9 months per 24-month period
Loan rehabilitation expanded
For borrowers in default, the new budget reconciliation act allows borrowers to go through loan rehabilitation twice per loan, instead of once as currently allowed.
What this means for you: If you or your child are planning to borrow for college, it’s more important than ever to understand the new rules:
- Fewer repayment options mean less flexibility—but potentially less confusion.
- Longer repayment timelines under the new RAP plan could mean lower monthly payments, but more interest paid over time.
- Tighter deferment rules means that borrowers should build a strong financial safety net in case of job loss or hardship.
- Aid eligibility changes could reduce the amount of grant money available, especially for students receiving institutional scholarships.
What to consider:
- Review your current repayment plan if you’re already borrowing—some plans will be phased out. You can also check to see if your employer offers a student debt repayment benefit to help you stay on track. The new act permanently extends the pandemic-era provision allowing employers to contribute up to $5,250 annually toward employees' student loan payments on a tax-free basis. Read Fidelity Learn: What’s going on with student loans?
- Plan ahead for how much you’ll need to borrow, and whether new loan caps will cover your costs.
- Talk to your school's financial aid office to understand how the new SAI rules may affect your eligibility.
Bottom line
Some changes in the new tax law may offer families and friends more opportunities to save for the children in their lives—as well as greater growth potential, flexibility, and simplicity. Others may reduce benefits or limit access to student aid. Now is a great time to review your financial plan and consider adjusting your strategy to address the new rules.