Whether to open a Trump account depends on your child's age, how long you can leave money untouched, and whether your state offers the program

A Trump account (formally a Coverdell Education Savings Account, or ESA) makes sense if you have a child under 18, can set aside money you won't need for at least a few years, and want tax-free growth on education expenses. It does not make sense if you need the money soon, if your income is too high for your state's program, or if you are already maxing out a 529 plan. The decision comes down to three things: whether your child qualifies by age, whether you can afford to lock money away, and what your tax situation looks like.

The core trade-off is simple: you get tax-free growth and tax-free withdrawals for education, but you can only contribute $2,000 per child per year, and the account must close by age 30. If those limits fit your savings plan, the account is worth opening. If you want to save more than $2,000 per year or need the money before your child turns 18, a 529 plan or regular savings account may work better.

Key Takeaways

  • You can only open a Trump account for a child under 18, and the account must be closed by age 30 or the money gets taxed and penalized.
  • You can contribute up to $2,000 per child per year (as of 2024), but this limit is per child across all accounts, not per account.
  • Money grows tax-free and can be withdrawn tax-free for may have access to education expenses: tuition, fees, books, supplies, equipment, and room and board at an accredited school.
  • If you withdraw money for non-education expenses, you pay income tax plus a 10 percent penalty on the earnings portion only.
  • Your state may have income limits or other rules; check your state's program before opening an account.

Who can open a Trump account and for whom

You can open a Trump account for any child under 18 (or a dependent under 18 for tax purposes). The account must be in the child's name, but you control it as the custodian until the child turns 18 or 21, depending on your state's rules. Once the child reaches that age, they take control of the account.

Your own income does not disqualify you from opening the account, but some states set income limits for who can contribute. Check your state's education savings program rules before you open; a few states have phased contribution limits that shrink as your income rises. If you hit the limit, you simply cannot contribute that year, but an account you already opened stays open.

The account must be closed or emptied by the time the child turns 30. Any money left in the account after that date is taxed as income to the child, plus a 10 percent penalty applies to the earnings. This is a hard deadline, not a suggestion. Plan your contributions with this end date in mind.

Annual contribution limits and how they work across accounts

You can contribute up to $2,000 per child per calendar year. This limit applies across all Trump accounts for that child, not per account. If you open two Trump accounts for the same child and contribute $1,200 to one and $1,000 to the other, you have hit the limit and cannot contribute more that year.

The $2,000 limit resets on January 1 each year. Contributions made after December 31 count toward the next year's limit. You do not have to contribute every year; you can skip years and come back later, but you cannot carry forward unused room from one year to the next. If you contribute $1,500 one year, you lose the $500 you did not use.

If you contribute more than $2,000 in a single year, the excess is subject to a 6 percent excise tax per year until you withdraw it. This is expensive and easy to avoid by tracking your contributions carefully, especially if multiple family members are contributing to the same child's account. Keep a running total if grandparents or other relatives are also saving for your child.

What money can be used for without tax or penalty

Withdrawals are tax-free and penalty-free when used for may have access to education expenses at an accredited school. These include tuition and fees, books and supplies, equipment (including a computer), and room and board if the child is at least a half-time student. The school can be a public or private elementary, middle, or high school, or a college or university.

Room and board is only covered if the child is enrolled at least half-time. If your child is a full-time student living at home, room and board does not count. If your child is a part-time student, room and board does not count either. K-12 tuition is covered, but transportation, insurance, and medical expenses are not.

If you are unsure whether an expense qualifies, ask the school's financial aid office or check the IRS Publication 970, which lists all may have access to expenses in detail. Keeping receipts and documentation is important in case the IRS ever questions a withdrawal.

What happens if you withdraw money for other reasons

If you withdraw money for anything other than may have access to education expenses, you pay income tax on the earnings portion of the withdrawal, plus a 10 percent penalty on those earnings. The principal (the money you contributed) comes out tax-free and penalty-free. Only the growth is taxed and penalized.

Example: You contribute $5,000 over several years, and the account grows to $6,200. If you withdraw $6,200 for a non-may have access to expense, you pay income tax plus 10 percent penalty on $1,200 (the earnings), but the $5,000 principal comes out clean. The tax bill depends on your tax bracket; if you are in the 22 percent bracket, you owe roughly $264 in tax plus $120 in penalty, for a total of $384 on the $1,200 in earnings.

If the child receives a scholarship, you can withdraw an amount equal to the scholarship without penalty (though you still pay tax on the earnings). This rule exists so a scholarship does not force you to waste the account or pay unnecessary penalties. Document the scholarship amount and keep the award letter.

How Trump accounts compare to 529 plans

A 529 plan is a different education savings account with higher contribution limits ($235,000 or more per child, depending on your state) and more flexibility on what counts as a may have access to expense. A Trump account has a much lower annual limit ($2,000) but offers the same tax-free growth and withdrawal for education.

If you have money to save and want to put away more than $2,000 per year per child, a 529 plan lets you do that. If you want to save a smaller amount and prefer simplicity, a Trump account is easier to manage. You can have both: contribute $2,000 to a Trump account and more to a 529 plan in the same year. The $2,000 Trump limit does not reduce your 529 contribution room.

One advantage of a Trump account: if your child does not go to college, you can roll the money into a 529 plan for a younger sibling (as of 2024, under new rules). A 529 plan does not have this option. If you are unsure which account fits your situation, a tax professional can help you compare your options and choose the right tool for your family.

State-specific rules and where to open an account

Most states do not run Trump accounts themselves; instead, you open one through a financial institution like a bank, brokerage, or mutual fund company. Your state may have a recommended list of providers, or you can choose any provider that offers Trump accounts. There is no state-specific account; the rules are federal, and any provider can open one for you.

A few states do set income limits or other rules. For example, some states limit contributions if your modified adjusted gross income (MAGI) exceeds a certain threshold. Check your state's education savings program website or call your state's education department to see if there are rules that affect you before you open an account.

Once you choose a provider, you will fill out an application with your information and your child's Social Security number. The provider will assign the account a number and send you statements. You can then contribute by check, bank transfer, or automatic deposit, depending on the provider's options. Compare providers on fees and investment choices before you decide.

Frequently Asked Questions

Can I open a Trump account if my child is already in college?

No. The child must be under 18 when you open the account. If your child is already in college, you cannot open a new Trump account for them. You could open one for a younger child or use a 529 plan, which has no age restriction on when you open it.

What happens to the account if my child does not go to college?

You can roll the money into a 529 plan for a sibling (as of 2024). If you do not roll it over, you withdraw the money, pay income tax and a 10 percent penalty on the earnings, and close the account. The principal comes out tax-free. This is why the decision to open an account should account for the possibility that your child may not attend college.

Can I change who the account is for after I open it?

No. A Trump account is set up for a specific child and cannot be changed to another child. If you want to save for a different child, you must open a separate account. You can roll money from one child's account to a sibling's account, but this requires closing the original account and following specific IRS rules.

Do I have to use the money by a certain age, or can my child wait until graduate school?

The account must be closed by age 30. Money can be used for undergraduate or graduate school, but if any money remains after the child turns 30, it is taxed and penalized. Graduate school counts as a may have access to education expense, so you can use the money then, but you cannot hold the account open indefinitely.

What if I contribute too much in one year by accident?

Contact the provider and ask them to return the excess contribution. If they return it before the tax filing deadline (usually April 15), you avoid the 6 percent excise tax. If the excess sits in the account past that date, you owe 6 percent tax per year on the overage until you withdraw it. It is worth fixing quickly.