Trump accounts work best if you want a tax break on savings you're already making, but they're not right for every family

A Trump account (formally a Coverdell Education Savings Account) gives you a tax advantage when you save money for a child's education. The money grows without being taxed, and you withdraw it tax-free for may have access to education costs. That's genuinely useful—but only if you have money to set aside, you're comfortable with investment decisions, and the child will actually use it for school. If you're living paycheck to paycheck, or if you're not sure the child will go to college, a Trump account may not be the right tool.

The real question isn't whether Trump accounts are good in theory. It's whether they solve a problem you actually have. This guide walks through what they do, what they cost you, and who should and shouldn't open one.

Key Takeaways

  • Trump accounts let you save up to $2,000 per child per year with no federal tax on the growth, as long as you use the money for education expenses.
  • You must open the account before the child turns 18, and the money must be spent by age 30 or you'll owe taxes and a penalty on the earnings.
  • The account counts against financial aid calculations, which can reduce the amount of aid the child receives in college.
  • You need to choose how the money is invested (stocks, bonds, mutual funds), and poor investment choices can shrink the balance.
  • Trump accounts only make sense if you have discretionary income to save and a realistic plan for the child to attend college or another may have access to school.

What you can and cannot do with the money

Trump account funds can pay for tuition, fees, books, supplies, and equipment at any accredited college, university, or vocational school. They also cover room and board if the child is enrolled at least half-time. Some people don't realize the account can also pay for K-12 private school tuition (up to $35,000 lifetime per child) and up to $35,000 can be rolled into a Roth IRA for the child if there's money left over at age 30.

What you cannot do: withdraw money for non-education expenses without a penalty. If you take out $5,000 for a car or medical bills, you'll owe income tax on the earnings portion plus a 10% penalty. The contribution itself comes out tax-free, but the growth does not. This makes Trump accounts inflexible compared to a regular savings account, so only fund one if you're confident the money will go toward school.

The financial aid problem

Trump accounts reduce the amount of financial aid a child may receive. When you fill out the FAFSA (Free process for Federal Student Aid), the form asks about assets in the student's name. Money in a Trump account counts as a student asset, which reduces aid may be able to access more severely than money in a parent's name would.

The exact impact depends on the school and the aid formula they use, but a general rule: for every dollar in a student-owned account, the school may reduce aid by 20 cents or more. If you have $20,000 saved in a Trump account, you might lose $4,000 or more in aid. This is a real cost that many families overlook. Before opening an account, think about whether the tax savings will outweigh the aid reduction.

The investment risk you take on

When you open a Trump account, you choose how the money is invested. You can pick from mutual funds, stocks, bonds, or money market accounts—the options depend on the financial institution that holds the account. You are responsible for those choices, and if you pick poorly or if the market drops before the child needs the money, the balance shrinks.

This is different from a regular savings account, where your money sits safely earning a small interest rate. In a Trump account, you're taking on market risk. If you invest aggressively and the stock market falls in the year before the child starts college, you could have significantly less money than you put in. If you're not comfortable making investment decisions or monitoring the account, this adds stress and potential loss.

The age important date and what happens if money is left over

You must open a Trump account before the child turns 18. Once the account exists, you can keep contributing until the child is 18, but no later. This is a hard important date—you cannot open one for a 19-year-old.

If money remains in the account after the child turns 30, you have a choice: roll the balance into a Roth IRA for the child (up to annual contribution limits), or withdraw it and pay income tax plus a 10% penalty on the earnings. The contribution itself is never taxed twice, but the growth is. This means Trump accounts are not a long-term wealth-building tool if the child doesn't use the money for school. Plan for the money to be spent by 30, or accept that you'll pay a penalty on unused earnings.

Who should open a Trump account

Trump accounts make sense for families with steady income who can set aside $2,000 or more per year without affecting their emergency fund or monthly bills. You should be reasonably confident the child will attend college or another may have access to school. You should also be comfortable with investment decisions, or willing to pay an advisor to help you choose a strategy.

They also work better if your family income is high enough that you won't receive much financial aid anyway. If your child is likely to get substantial grants or federal aid, the reduction in aid may be able to access may outweigh the tax savings. Run the numbers with a tax professional or financial advisor before committing.

Who should skip a Trump account

If you're living paycheck to paycheck or don't have a full emergency fund, do not open a Trump account. The money is locked in until the child is in school, and you'll face penalties if you need it early. A regular savings account is safer and more flexible.

Skip it if you're uncertain whether the child will go to college. If the child pursues a trade, military service, or a path that doesn't involve higher education, the money becomes expensive to access. Also skip it if you're uncomfortable managing investments or if you expect to receive substantial financial aid—the aid reduction may cost more than the tax savings.

Frequently Asked Questions

Can I open a Trump account for a grandchild or niece?

Yes. You don't have to be the parent. Any adult can open a Trump account for any child under 18. The account is owned by the adult, not the child, so you control the money and the investment decisions. The child's age is the only restriction.

What happens if the child gets a scholarship?

If the child receives a scholarship, you can withdraw an amount equal to the scholarship from the Trump account without the 10% penalty—though you'll still owe income tax on the earnings portion of that withdrawal. The contribution itself comes out tax-free. This is one of the few penalty-free withdrawal reasons.

Can I move money from a Trump account to a 529 plan?

No direct transfer exists, but as of 2024, you can roll unused Trump account funds into a Roth IRA for the child (up to annual limits). You cannot move the money to a 529 plan. If you want to switch strategies, you'd have to withdraw the money and pay taxes and penalties on the earnings.

Does a Trump account affect my taxes right now?

No. Contributions to a Trump account are not tax-deductible. You don't get a tax break when you put money in—only when it grows and when you withdraw it for school. This is different from some other education savings tools. The tax benefit comes later, not when ready.

What if I don't use all the money by the time the child turns 30?

You can roll up to the annual Roth IRA contribution limit into a Roth IRA in the child's name, or withdraw the rest and pay income tax plus a 10% penalty on the earnings. The contribution amount is never taxed again. Plan to spend the money by 30, or accept the penalty cost.