What a Trump Account Is
A Trump Account is a tax-advantaged savings account designed specifically for children. The account holder — usually a parent, grandparent, or guardian — deposits money that grows tax-free and can be withdrawn tax-free when the child reaches a certain age, typically 18 or 21 depending on the program rules in your state.
The core idea is straightforward: you set aside money for a child's future while getting a tax break on the growth. Unlike a regular savings account at a bank, the money in a Trump Account is not taxed on the interest or investment gains it earns. This means more of the money stays in the account and continues to grow.
These accounts are state-run programs, which means the rules, contribution limits, and investment options vary depending on where you live. Some states call them by different names, but they all work on the same basic principle: save money for a child's future with tax advantages.
Key Takeaways
- A Trump Account lets you save money for a child with tax-free growth, meaning you do not pay taxes on the earnings.
- Each state runs its own program with different rules, so the details depend on where you live and which program you choose.
- You can usually open an account with a modest first deposit, and contributions are made with after-tax dollars (money you have already paid income tax on).
- Withdrawals are tax-free when used for the child's education or other may have access to expenses — the specific list depends on your state's program.
- If money is withdrawn for non-may have access to expenses, you typically pay income tax on the earnings plus a penalty.
How Money Grows in a Trump Account
When you deposit money into a Trump Account, you choose how that money is invested. Most programs offer a range of investment options, from conservative choices (like money market funds or stable value funds) to more aggressive options (like stock-based mutual funds). The more aggressive the investment, the higher the potential growth — but also the higher the risk.
The key tax advantage is that any earnings — whether from interest, dividends, or investment gains — are not taxed while the money sits in the account. In a regular savings account, you would owe federal income tax on the interest each year. In a Trump Account, that tax is deferred or eliminated entirely, depending on how the money is used when withdrawn.
Over time, this tax advantage can add up significantly. A $5,000 deposit that grows to $8,000 in a regular account might result in taxes owed on the $3,000 gain. In a Trump Account, if the withdrawal is for a may have access to expense, you owe no tax on that $3,000 gain.
Who Can Open an Account and Contribute
You do not have to be the child's parent to open a Trump Account. Grandparents, aunts, uncles, family friends, or anyone else can open an account for a child and contribute to it. The account is owned by the adult (the account owner), but it is designated for a specific child (the beneficiary).
Most programs allow you to open an account with a relatively small initial deposit — often $25 to $250, depending on the program. After that, you can contribute additional money on your own schedule. There are annual contribution limits set by federal law, which vary based on the type of account and your income, but for most families these limits are high enough that they do not become a practical constraint.
You will need the child's Social Security number to open the account. If you do not have it, you can obtain one through the Social Security Administration.
What You Can Use the Money For
The most common use for Trump Account funds is paying for education expenses. This includes tuition and fees at colleges, universities, trade schools, and some vocational programs. It also covers room and board if the child is enrolled at least half-time, books, supplies, and in some cases computers and internet access required for school.
Some state programs have expanded the list of may have access to expenses beyond education. Depending on your state, you may be able to withdraw money tax-free for K-12 private school tuition, apprenticeship programs, student loan repayment, or even certain disability-related expenses. A few states allow withdrawals for any purpose once the child reaches a certain age, though this is less common.
Before opening an account, check your state program's rules about what counts as a may have access to expense. The list matters because withdrawals for non-may have access to expenses trigger taxes and penalties on the earnings portion of the withdrawal.
What Happens If You Withdraw Money for Other Reasons
If you withdraw money from a Trump Account for something that is not a may have access to expense — say, to pay for a family vacation or a car — you will owe income tax on the earnings portion of the withdrawal, plus a 10 percent federal penalty on those earnings. The principal (the money you originally deposited) comes out tax-free, but the growth does not.
There are a few exceptions to the penalty. If the beneficiary receives a scholarship, dies, or becomes disabled, you can withdraw money without the 10 percent penalty, though you may still owe income tax on the earnings. Some states also allow penalty-free withdrawals in other circumstances — check your specific program.
If you change your mind about who the money is for, you can change the beneficiary to another family member (usually a sibling, cousin, or other relative) without triggering taxes or penalties. This flexibility can be useful if one child does not need the money or if circumstances change.
How Trump Accounts Affect Financial Aid
Money in a Trump Account owned by a parent is counted as a parental asset when calculating financial aid for college. This means it can reduce the amount of need-based financial aid a student receives. The exact impact depends on the financial aid formula used by the college, but generally, parental assets reduce aid may be able to access more than student assets do.
If the account is owned by a grandparent or other non-parent relative, the impact on financial aid is typically smaller or nonexistent, depending on the college's policies. This is one reason some families choose to have grandparents own the accounts instead of parents.
Before opening a Trump Account, consider talking with a financial aid advisor at the college your child plans to attend, or use the college's net price calculator to see how the account might affect aid may be able to access.
Comparing Trump Accounts to Other Savings Options
Trump Accounts are not the only way to save for a child's future. A regular savings account at a bank is simpler but offers no tax advantages. A Coverdell Education Savings Account (ESA) is another tax-advantaged option, but it has lower contribution limits and stricter rules about what expenses may have access to. A 529 plan is similar to a Trump Account and is available in every state, though the specific features and investment options vary.
The choice between these options depends on your state, how much you plan to save, what you plan to use the money for, and how much control you want over the investments. Some families use multiple accounts to take advantage of different tax benefits. There is no single "best" choice for everyone.
If you are unsure which option makes sense for your situation, consider speaking with a tax professional or financial advisor who can review your specific circumstances.
Frequently Asked Questions
Can I change my mind about which child the money is for?
Yes. You can change the beneficiary to another family member — usually a sibling, cousin, or other relative — without taxes or penalties. The rules about who counts as a family member vary by state, so check your program's rules before assuming a particular relative is may be able to access.
What happens to the money if the child does not go to college?
If the beneficiary does not use the money for a may have access to expense, you can change the beneficiary to another family member, or you can withdraw the money and pay income tax plus a 10 percent penalty on the earnings. Some states allow penalty-free withdrawals if the beneficiary receives a scholarship or becomes disabled.
Can I open multiple accounts for the same child?
Yes, but there are federal contribution limits that explore across all accounts for the same beneficiary. If you open multiple accounts, the total contributions across all of them cannot exceed the annual limit set by federal law. Check your state program for specific rules.
Do I need to use the money by a certain age?
Rules vary by state. Some programs require the money to be used by age 30, while others allow it to remain in the account indefinitely. Check your state program's rules about age limits and account duration.
What if I do not have a Social Security number for the child yet?
You will need the child's Social Security number to open the account. You can obtain one through the Social Security Administration by submitting an process in person at a local office or by mail. The process typically takes a few weeks.