What a Trump Account Is

A Trump account is a tax-advantaged savings account designed to help families set aside money for a child's future education or other long-term expenses. The account is opened in the child's name, and money deposited into it grows tax-free as long as it stays in the account. When the child reaches a certain age or the money is withdrawn for a may have access to expense, the growth is not taxed by the federal government.

The account belongs to the child, not the parent or guardian who opens it. This means the child's Social Security number is used to establish the account, and the child is the legal owner. Parents, grandparents, or other relatives can contribute money, but they do not own the account itself.

Trump accounts are state-sponsored programs, which means each state runs its own version with its own rules, contribution limits, and investment options. The program is also called a 529 plan, named after the section of the Internal Revenue Code that created it. Not all states offer Trump accounts specifically—some states offer only education savings plans, while others offer both education and non-education versions.

Key Takeaways

  • A Trump account is opened in a child's name and allows money to grow tax-free when used for may have access to expenses like education or certain other long-term costs.
  • Each state runs its own Trump account program with different contribution limits, investment choices, and rules about what the money can be used for.
  • Money deposited into a Trump account is not tax-deductible at the federal level, though some states offer a state income tax deduction for contributions.
  • If money is withdrawn for a non-may have access to expense, the earnings portion is taxed as income and subject to a 10 percent federal penalty, though the original deposits can always be withdrawn tax-free.
  • Trump accounts do not affect a child's Social Security benefits, but they may reduce the child's may be able to access for need-based financial aid in college.

How Money Grows in a Trump Account

When you deposit money into a Trump account, you choose how that money is invested. Most state programs offer a range of investment options, from conservative choices like money market funds to more aggressive options like stock-based mutual funds. The money you choose to invest will grow or shrink based on how those investments perform in the market.

The key tax advantage is that any earnings—the profit made from investments—are not taxed by the federal government as long as the money stays in the account. If you deposit $5,000 and it grows to $7,000, that $2,000 in earnings is not subject to federal income tax. This is different from a regular savings account or investment account, where you would owe taxes on the earnings each year.

Some states also offer a state income tax deduction for contributions to a Trump account. This means if you live in a state that offers this deduction and you contribute $2,500 to your child's Trump account, you may be able to deduct that $2,500 from your state taxable income. The amount of the deduction varies by state and may have limits.

Contribution Limits and Who Can Contribute

There is no annual federal limit on how much you can contribute to a Trump account in a single year. However, each state sets its own aggregate limit—the total amount that can be held in the account across all contributions. These limits typically range from $235,000 to $550,000 per child, depending on the state. Once the account reaches the state's limit, no more money can be added until some is withdrawn.

Anyone can contribute to a Trump account: parents, grandparents, aunts, uncles, family friends, or the child themselves if they have earned income. The person making the contribution does not have to be related to the child. Contributions are considered gifts, so they may be subject to federal gift tax rules if they exceed certain thresholds, though most family contributions fall well below those thresholds.

The account owner—the child—does not have to do anything to receive contributions. Parents or guardians manage the account on the child's behalf until the child reaches the age of majority, which varies by state but is typically 18 or 21.

What may have access to Expenses Mean

A may have access to expense is any cost that the Internal Revenue Service allows you to pay with Trump account money without triggering taxes on the earnings. The most common may have access to expenses are education-related: tuition, fees, books, supplies, and room and board at an accredited college, university, or vocational school. Some Trump accounts also cover K-12 tuition at public, private, or religious schools.

In recent years, the rules have expanded. Many Trump accounts now allow withdrawals for student loan repayment—up to $35,000 total over a lifetime—and some allow money to be rolled over into a Roth IRA for the child. A few states have added non-education may have access to expenses like certain apprenticeship programs or disability-related costs, but these vary significantly by state.

If you withdraw money for a non-may have access to expense, only the earnings portion is taxed and penalized. The original money you deposited can always be withdrawn tax-free, regardless of how it is used. For example, if your account holds $10,000 in deposits and $2,000 in earnings, and you withdraw $5,000 for a non-may have access to expense, the $2,000 in earnings is subject to income tax and a 10 percent federal penalty.

How Trump Accounts Affect Financial Aid

Money held in a Trump account in the child's name is counted as an asset belonging to the child when the child applies for need-based financial aid for college. This can reduce the amount of aid the child receives, because colleges assume a higher percentage of the child's assets will be used to pay for education compared to parental assets.

The exact impact depends on the college's financial aid formula and the amount in the account. A Trump account with $50,000 will have a larger impact on aid than one with $5,000. Some families choose to use the money before filing the Free Application for Federal Student Aid (FAFSA) to avoid this reduction, while others accept the trade-off because the tax savings over time outweigh the aid reduction.

If a parent owns the Trump account instead of the child, the impact on financial aid is smaller. Some states allow parents to open and own Trump accounts on behalf of their children for this reason, though the rules vary by state.

Changing Beneficiaries and Transferring Money

If you open a Trump account for one child and later want to use the money for a different child, you can change the account's beneficiary. This is called a beneficiary change or rollover. The money stays in the account and continues to grow tax-free; you simply name a new child as the beneficiary. The new beneficiary must be a member of the original beneficiary's family, which includes siblings, cousins, nieces, nephews, and even the original beneficiary's own children.

If you want to transfer money from one Trump account to another—for example, from a 529 plan in one state to a 529 plan in another state—you can do this through a direct rollover. The money moves directly from one account to the other without being paid to you, so there are no tax consequences. You typically have 60 days to complete the rollover if the money is paid to you first, though direct rollovers are simpler and recommended.

Withdrawals and What Happens to Unused Money

You can withdraw money from a Trump account at any time. If the withdrawal is for a may have access to expense, only the original deposits are tax-free; the earnings are also tax-free. If the withdrawal is for any other reason, the original deposits come out tax-free, but the earnings are taxed as income and subject to a 10 percent federal penalty.

If money remains in the account after the child finishes school or reaches adulthood, you have several options. You can leave the money in the account to continue growing tax-free. You can change the beneficiary to another family member. You can withdraw the money and pay taxes and penalties on the earnings. Or, depending on your state's rules, you may be able to roll the money into a Roth IRA for the child, which allows it to continue growing tax-free for retirement.

Some states impose age limits on Trump accounts, meaning the account must be closed or the money must be withdrawn by a certain age. Check your state's specific rules, as these vary.

Frequently Asked Questions

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

Yes. Anyone can open a Trump account for any child, as long as you have the child's Social Security number and the child's permission (or the permission of a parent or guardian if the child is very young). The account belongs to the child, not to you, so you cannot use the money for yourself.

What happens if I withdraw money and don't use it for a may have access to expense?

The original money you deposited comes out tax-free. The earnings are taxed as ordinary income at your federal tax rate, and you owe a 10 percent federal penalty on the earnings. For example, if you withdraw $7,000 from an account that holds $5,000 in deposits and $2,000 in earnings, the $2,000 in earnings is taxed and penalized.

Do I have to use the money for college?

Not necessarily. While education is the most common use, many Trump accounts now allow withdrawals for K-12 tuition, student loan repayment, apprenticeships, and in some states, disability-related expenses. Check your state's specific rules to see what may have access to expenses are allowed.

Will a Trump account hurt my child's chances of getting financial aid?

It may reduce need-based aid because the money is counted as the child's asset. The impact depends on how much is in the account and the college's aid formula. Some families withdraw the money before applying for aid to avoid this, while others accept the reduction because the tax savings are worth it.

Can I move money from one state's Trump account to another state's Trump account?

Yes, through a direct rollover. The money moves from one account to the other without being paid to you, so there are no tax consequences. Contact the new state's program to learn how to initiate the transfer.