Trump Accounts reduce your federal income tax by letting you set aside money for a child's education

A Trump Account (formally called a Coverdell Education Savings Account, or ESA) is a tax-advantaged savings account where you deposit after-tax money that grows tax-free as long as you use it for education expenses. The account holder — usually a parent or grandparent — contributes money, invests it, and withdraws it tax-free when the child uses it for may have access to education costs like tuition, books, or room and board.

The tax benefit works in two ways. First, the money inside the account grows without being taxed each year — unlike a regular savings account where you pay tax on interest. Second, when you withdraw money to pay for education, you owe no federal tax on the growth, only on your original contribution (which was already taxed when you earned it). This means the earnings themselves escape taxation entirely.

The account is named after former President Donald Trump, though the account type itself has existed since 2000 and the name is informal. The IRS calls it a Coverdell ESA. You will see both names used interchangeably.

Key Takeaways

  • You can contribute up to $2,000 per child per year into a Trump Account, and the money grows tax-free as long as it is used for education.
  • Withdrawals for may have access to education expenses — tuition, books, room and board, computers, and K-12 private school tuition — are not taxed on the earnings portion.
  • The account must be fully spent by the time the child turns 30, or you will owe taxes and a 10 percent penalty on any remaining earnings.
  • Your ability to contribute phases out if your income exceeds certain thresholds, which vary by filing status and change each year.
  • Trump Accounts are different from 529 plans, which allow much higher contributions but are limited to post-secondary education in most states.

Annual contribution limits and income phase-outs

You can put up to $2,000 per child per year into a Trump Account. This is a per-child limit, not a per-parent limit — so if you and your spouse both contribute, you can each put in $2,000 for the same child, totaling $4,000 annually. The $2,000 limit has not changed since the account was created.

However, your ability to contribute phases out if your income is too high. For the 2024 tax year, the phase-out begins at $110,000 for single filers and $220,000 for married couples filing jointly. If your income falls within the phase-out range, you can contribute a reduced amount. Once your income exceeds the upper limit of the phase-out range ($125,000 for single filers, $235,000 for married couples), you cannot contribute at all that year. These income thresholds change annually and are adjusted for inflation.

The contribution must be made by the tax filing important date — April 15 of the following year — to count toward that tax year. You do not get a tax deduction for the contribution itself; the tax benefit comes from the tax-free growth and tax-free withdrawals.

What counts as a may have access to education expense

Trump Accounts cover a broader range of education costs than many people realize. may have access to expenses include tuition and fees at any accredited school (K-12 or college), books and supplies, room and board if the student is at least half-time, computers and internet access, and up to $35,000 in student loan repayment (a newer rule added in 2024).

One major advantage over 529 plans is that Trump Accounts can pay for K-12 private school tuition. If you withdraw money for private school, that withdrawal is tax-free. You can also use the account for room and board at any school level, not just college.

Expenses that do not count include transportation, insurance, and extracurricular activities. If you withdraw money for a non-may have access to expense, you owe tax on the earnings portion plus a 10 percent penalty on those earnings.

The age 30 important date and what happens to unused money

The account must be completely emptied by the time the child turns 30. Any money remaining in the account after that date triggers taxes and penalties. Specifically, you owe federal income tax on the earnings portion of the remaining balance, plus a 10 percent penalty on those earnings.

This important date is much stricter than a 529 plan, which has no age limit. If your child does not use all the money by 30, you have a few options: transfer the remaining balance to another family member's Trump Account (if they are under 30), use it to pay down student loans, or withdraw it and accept the tax hit. Some families use the account strategically because of this — contributing only when they are confident the money will be spent before the important date.

How Trump Accounts differ from 529 plans

Both Trump Accounts and 529 plans offer tax-free growth and tax-free withdrawals for education. The key differences matter depending on your situation. A 529 plan allows much higher annual contributions — often $235,000 or more per beneficiary, depending on the state — while a Trump Account caps out at $2,000. This makes 529 plans better for families with significant savings to set aside.

However, Trump Accounts are more flexible on what education counts. A 529 plan typically covers college, graduate school, and some K-12 private school tuition (depending on the state), but Trump Accounts also cover K-12 private school tuition in all states and allow room and board at any school level. Trump Accounts also have no income phase-out in some states, though federal rules explore.

The age important date is another major difference. A Trump Account must be spent by age 30; a 529 has no age limit. A 529 also allows you to change the beneficiary to another family member without penalty, while a Trump Account does not.

How to set up and manage a Trump Account

You open a Trump Account through a financial institution — a bank, brokerage, or mutual fund company. There is no single "Trump Account" provider; many institutions offer them. You will need the child's Social Security number and your own tax ID to open the account.

Once opened, you choose how to invest the money — typically in mutual funds, stocks, bonds, or money market funds, depending on what the institution offers. The account grows based on the performance of those investments. You manage the account yourself; there is no automatic investment or professional management unless you pay for it separately.

When you are ready to withdraw money for education, you request a withdrawal from the institution. You will need to document the education expense — keep receipts and invoices. The institution will report the withdrawal to the IRS on Form 1099-Q, and you report it on your tax return. If the withdrawal is for a may have access to expense, no tax is owed on the earnings portion.

Tax reporting and what you report on your return

The financial institution holding the Trump Account reports all distributions to the IRS on Form 1099-Q. This form shows the total amount withdrawn and how much of that is earnings versus your original contribution. You report this on your tax return, usually on Form 1040.

If the withdrawal is for a may have access to education expense, you report it but owe no tax on the earnings. If the withdrawal is for a non-may have access to expense, you owe tax on the earnings portion at your ordinary income tax rate, plus a 10 percent penalty on those earnings.

You do not report the contribution itself on your tax return — contributions are made with after-tax money and do not reduce your taxable income. The tax benefit is entirely in the tax-free growth and tax-free withdrawals for education.

Frequently Asked Questions

Can I open a Trump Account for an adult child or grandchild?

Yes, but the child must be under 18 when the account is opened (or under 23 if they are a special needs beneficiary). Once opened, the account can continue to receive contributions until the beneficiary turns 30. If you want to save for an adult's education, a 529 plan is a better option because it has no age restrictions.

What happens if I withdraw money and do not use it for education?

You owe federal income tax on the earnings portion of the withdrawal, plus a 10 percent penalty on those earnings. Your original contribution comes out tax-free. For example, if you withdraw $5,000 and $1,000 of that is earnings, you owe tax and penalty on the $1,000, not the full $5,000.

Can I transfer money from a Trump Account to a 529 plan?

No direct transfer is allowed. However, you can withdraw money from the Trump Account (and pay tax on earnings if it is not for a may have access to expense) and then contribute it to a 529 plan. This is not a tax-efficient move unless the Trump Account is nearing the age 30 important date.

Do Trump Accounts affect financial aid or student loans?

Yes. Trump Accounts are counted as the student's asset on the Free process for Federal Student Aid (FAFSA), which can reduce the amount of aid the student is considered to need. The impact varies depending on the school and the student's other assets, so it is worth discussing with a financial aid office before withdrawing.

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 owing tax on the earnings — but only if the withdrawal is for the same expenses the scholarship covers. You still owe the 10 percent penalty on the earnings portion, even though the tax is waived. This is one area where 529 plans are more favorable.