What a Trump Account Is
A Trump Account is a tax-advantaged savings program designed to help families set aside money for a child's future expenses. The account lets you deposit money that grows tax-free, and you withdraw it tax-free when you use it for certain approved purposes. The name comes from the legislation that created it, not from any political affiliation or endorsement.
The program works like this: you open an account in a child's name (or for yourself as the account owner, depending on the account type), deposit money into it, and that money can be invested in stocks, bonds, or other options depending on the account provider. When the child reaches certain milestones or you need to pay for covered expenses, you withdraw the money without owing federal income tax on the growth.
Trump Accounts are one of several tax-advantaged savings vehicles available to families. They sit alongside 529 education savings plans, Coverdell accounts, and regular custodial accounts. The specific rules, contribution limits, and approved uses differ between each type, which is why understanding which account matches your situation matters.
Key Takeaways
- Trump Accounts allow you to save money for a child that grows tax-free and can be withdrawn tax-free for covered expenses.
- Contribution limits, investment options, and approved uses vary depending on which Trump Account product you choose and which financial institution offers it.
- Money in the account belongs to the child, but you control it until they reach the age of majority in your state (usually 18 or 21).
- Withdrawals for non-approved purposes may trigger taxes and penalties, so knowing what you can use the money for before you withdraw matters.
How Money Goes Into and Out of a Trump Account
You fund a Trump Account by depositing money directly from your bank account, paycheck, or other sources. There is no federal limit on how much you can deposit per year, though some account providers set their own minimums or maximums. You can make deposits whenever you want—monthly, annually, or in lump sums.
The money you deposit is not tax-deductible on your federal return. However, some states offer state income tax deductions for contributions to certain Trump Account products, so check your state's rules. Once the money is in the account, it can be invested according to the investment options your provider offers.
Withdrawals work differently depending on what you use the money for. If you withdraw funds for approved expenses—such as education, certain health costs, or disability-related expenses, depending on the account type—the withdrawal is tax-free and penalty-free. If you withdraw for other reasons, you owe income tax on the earnings portion of the withdrawal, plus a 10 percent federal penalty in most cases.
Who Can Open and Control a Trump Account
A parent, grandparent, or other adult can open a Trump Account for a child. The account is owned by the child, but the adult (called the custodian) controls it and makes investment and withdrawal decisions until the child reaches the age of majority in your state. In most states, that age is 18; in others, it is 21.
Once the child reaches that age, control of the account transfers to them. They can then make their own decisions about how to invest the money and when to withdraw it. Some account providers allow you to name a successor custodian in case something happens to you before the child reaches adulthood.
You can open a Trump Account at most major financial institutions—banks, investment firms, and brokerage companies. Each provider sets its own rules about minimum deposits, investment options, and account fees, so comparing providers before you open an account can save you money over time.
What Expenses may have access to for Tax-Free Withdrawals
The approved uses for Trump Account withdrawals depend on the specific account type and product you choose. Common covered expenses include tuition and fees at schools, books and supplies, room and board if the child is in school, computers and technology for education, and certain disability-related costs.
Some Trump Account products are broader than others. A few allow withdrawals for any purpose once the child reaches a certain age, while others restrict withdrawals to specific categories throughout the account's life. Before you open an account, ask the provider for a complete list of what counts as an approved expense, because withdrawing for something not on that list triggers taxes and penalties.
If you withdraw money and later realize it was not for an approved expense, you may be able to redeposit it within a certain timeframe, depending on the account type and provider rules. Check your account agreement or call your provider to understand the redeposit window if this happens to you.
How Trump Accounts Affect Financial Aid and Benefits
Money in a Trump Account is considered an asset owned by the child. When you apply for federal student financial aid (using the FAFSA form), the account value is reported and can reduce the amount of aid the child is offered. The exact impact depends on how much is in the account and the financial aid formula used by the school.
Trump Accounts may also affect means-tested benefits like Supplemental Security Income (SSI) or Medicaid, depending on the account balance and your state's rules. If the child receives or may receive these benefits, consult with a benefits counselor before opening an account or making large deposits, because the account could cause the child to lose may be able to access.
Some Trump Account types have different treatment under financial aid rules than others. For example, accounts owned by a parent are treated differently from accounts owned by a grandparent or other relative. Ask your financial institution how the specific account you are considering will be counted when financial aid is calculated.
Trump Accounts Compared to Other Savings Options
A 529 education savings plan is the most common alternative to a Trump Account. Both offer tax-free growth and tax-free withdrawals for approved expenses, but 529 plans are specifically designed for education costs and have higher contribution limits. If education is your main goal, a 529 plan may offer more flexibility and better tax treatment in your state.
A Coverdell Education Savings Account (ESA) is smaller than a 529 plan—you can contribute only $2,000 per year per child—but it allows a broader range of education expenses, including K-12 tuition and certain tutoring costs. A regular custodial account (opened under the Uniform Transfers to Minors Act, or UTMA) has no contribution limits and no restrictions on what you use the money for, but you pay taxes on the earnings each year.
The right choice depends on your goals, how much you plan to save, which expenses you expect to cover, and your state's tax rules. Many families use more than one type of account to maximize tax benefits. A tax professional or financial advisor can help you decide which combination makes sense for your situation.
What Happens to a Trump Account If the Child Does Not Use the Money
If the child reaches adulthood and does not withdraw the money for an approved expense, the account remains theirs to manage. They can keep it invested, withdraw it and pay taxes on the earnings, or use it for an approved expense later in life if the account type allows.
Some Trump Account products allow the account to be transferred to another family member (such as a sibling) if the original child does not use the money. This is called a rollover or transfer, and the rules vary by account type and provider. Ask your provider whether this option is available before you open the account.
If the child passes away before using the money, the account becomes part of their estate. The money may be subject to estate taxes depending on the account size and your state's rules. Naming a beneficiary on the account can help the money transfer smoothly to whoever you want to receive it.
Frequently Asked Questions
Can I change my mind and withdraw money from a Trump Account without penalties?
You can withdraw money at any time, but you only avoid taxes and penalties if you use it for an approved expense. If you withdraw for any other reason, you owe income tax on the earnings portion plus a 10 percent federal penalty. Some account types allow you to redeposit the money within a certain window if you change your mind.
What happens if I open a Trump Account but then lose my job or face a financial hardship?
The money in the account is the child's asset, not yours, so you cannot access it to cover your own expenses without triggering taxes and penalties. Some account providers allow hardship withdrawals in cases of severe financial need, but this varies. Contact your provider to ask whether a hardship exception exists for your account type.
Can I open a Trump Account for a grandchild or other relative's child?
Yes, anyone can open a Trump Account for a child, not just parents. However, accounts owned by grandparents or other relatives may be treated differently under financial aid rules and means-tested benefits programs. Discuss this with the child's parents and a financial advisor before opening an account.
Do I have to invest the money in the Trump Account, or can I just leave it in cash?
Most Trump Account providers offer a cash option alongside stocks, bonds, and mutual funds. Leaving money in cash means it will not grow as much over time, but it also carries no investment risk. You can change your investment choice at any time, though some providers limit how often you can make changes.
What if the child does not go to college—can I still use the money?
It depends on the account type. Some Trump Accounts allow withdrawals for any purpose once the child reaches adulthood. Others restrict withdrawals to specific approved expenses throughout the account's life. Check your account agreement or ask your provider what uses are allowed if the child does not pursue higher education.