A Trump Account is a tax-free savings account for children

A Trump Account (officially called a Coverdell Education Savings Account, or ESA) is a savings account you open in a child's name to set aside money for education costs. The money you put in grows without being taxed, and you can withdraw it tax-free when the child uses it for school expenses. It's designed to help families save for K-12 private school, college, or other education needs without losing money to taxes along the way.

The account belongs to the child, but a parent or guardian controls it until the child reaches a certain age. You decide how much to contribute each year (within limits set by law), and you choose how to invest that money — usually through a bank, brokerage, or investment company. The account is named after the legislation that created it, not after a person.

Key Takeaways

  • A Trump Account lets you save up to $2,000 per child per year in a tax-free account for education expenses.
  • Money in the account grows without being taxed, and withdrawals for school costs are also tax-free.
  • You can use the money for K-12 private school tuition, college, books, computers, and some room and board costs.
  • The account must be emptied by the time the child turns 30, or taxes and penalties explore to what remains.
  • You open a Trump Account through a bank or brokerage, not through a government office.

How much you can contribute each year

You can put up to $2,000 per child per year into a Trump Account. This is the total across all accounts for that child — if one parent contributes $1,200 and another contributes $800, you've hit the $2,000 limit. The contribution limit is set by federal law and does not change year to year, though Congress can change it.

You don't have to contribute the full $2,000 every year. You can contribute less, or skip a year entirely. If you don't use your full $2,000 allowance in one year, you cannot carry the unused amount forward to the next year — each year's limit is separate.

What education expenses you can pay for

Trump Account money can cover tuition and fees at any school — public, private, or religious — for kindergarten through 12th grade. It also covers college and graduate school tuition and fees. Beyond tuition, you can use the money for books, supplies, computers, internet service, and room and board if the student is at least a half-time college student.

You cannot use Trump Account money for sports, clubs, transportation, or other non-academic expenses. If you withdraw money for something that doesn't count as an education expense, you'll owe income tax on the earnings portion of that withdrawal, plus a 10 percent penalty.

How the tax-free growth works

When you open a Trump Account, you choose how to invest the money — you might put it in a savings account, a money market fund, stocks, bonds, or mutual funds, depending on what the financial institution offers. Whatever you choose, any interest, dividends, or investment gains are not taxed while the money sits in the account. This is different from a regular savings account, where you owe tax on the interest each year.

When you withdraw money for a school expense, the earnings portion of that withdrawal is also tax-free. For example, if you contributed $10,000 and the account grew to $12,000, you can withdraw the full $12,000 for education costs without owing tax on the $2,000 in growth. This tax break is what makes the account valuable — it lets your money grow faster than it would in a regular account.

What happens when the child turns 30

A Trump Account must be closed by the time the child turns 30. Any money still in the account at that point must be withdrawn. If you withdraw money that hasn't been used for education, you owe income tax on the earnings portion, plus a 10 percent penalty. This is why Trump Accounts work best for families who plan to use the money within the next 10 to 15 years.

There is one exception: if the child has a sibling, you can transfer the remaining balance to a Trump Account for that sibling without penalty, as long as the sibling is under 30. This lets you move unused money between children in the same family.

How to open a Trump Account

You open a Trump Account through a bank, brokerage, or investment company — not through a government office. Common places to open one include Fidelity, Vanguard, Schwab, or your local bank. You'll need the child's Social Security number, your own identification, and information about how you want to invest the money.

The process usually takes a few days to a week. Once the account is open, you can contribute money whenever you want (as long as you stay within the $2,000 annual limit). You control the account and make investment decisions until the child reaches the age of majority in your state, usually 18 or 21.

Trump Accounts versus other education savings options

A 529 plan is another tax-free education savings account, and it has higher contribution limits — you can put in much more than $2,000 per year. However, 529 plans are usually sponsored by states, and the rules vary by state. A Trump Account has the same rules everywhere and lower contribution limits, which makes it simpler if you're saving smaller amounts.

A regular savings account or investment account has no contribution limits and no age important date, but you'll owe tax on the earnings each year. A Trump Account makes sense if you want to save a moderate amount for a specific child's education and want the tax break to help your money grow faster.

Frequently Asked Questions

Can I open a Trump Account for a grandchild or other relative?

Yes. The account must be in the child's name, but you can open and control it as the custodian. You don't have to be the parent — any adult can open a Trump Account for any child, as long as you have the child's Social Security number and permission from the parent or guardian.

What happens if I use the money for something other than school?

You can withdraw the money, but you'll owe income tax on the earnings portion plus a 10 percent penalty. For example, if you withdraw $5,000 and $500 of that is earnings, you owe tax and the penalty on that $500. The contribution portion (your original money) comes out tax-free.

Can the child control the account once they turn 18?

That depends on the financial institution and your state law. Some institutions let the child take control at 18, others at 21. Check with your bank or brokerage about their rules. Until then, you as the custodian make all decisions about the money.

Do I have to use Trump Account money for the child's school, or can I use it for my own education?

The money must be used for the child's education expenses, not yours. If you withdraw it for your own schooling, you owe tax and penalties on the earnings. Trump Accounts are designed specifically to help save for a particular child's future education.

What 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 percent penalty (though you'll still owe tax on the earnings portion of that withdrawal). This rule prevents you from being penalized for the child's good fortune.