Touted as an “IRA for children,” Trump Accounts promise to give your child a “head start on the American Dream.”
These tax-advantaged investment accounts come with a one-time $1,000 contribution from the federal government. When your child turns 18, the money can be used for their education, a home purchase, or other qualified expenses.
However, questions remain about how these accounts factor into financial aid formulas. Here’s what we know.
Trump Accounts, explained
Trump Accounts, created under President Trump’s One Big Beautiful Bill Act, are tax-deferred investment accounts for Americans under age 18.
The goal: Bolster the next generation by giving children a head start on their wealth-building journey, so that they later can afford to buy a home, retire early, fund their education, and more. “Trump Accounts are now live, giving every child a stake in the American Dream from day one, thanks to President Trump,” said U.S. Treasury Secretary Scott Bessent in a statement.
As the child grows, additional contributions of up to $5,000, including $2,500 from employers, can be made by parents, family members, employers, and other organizations along the way. Those born between Jan. 1, 2025, and Dec. 31, 2028, get the added incentive of a one-time contribution of $1,000 from the government.
These accounts are technically owned by the child but managed by a parent or custodian until that child turns 18 — right around the time most people head to college. Withdrawals are generally subject to ordinary income tax.
According to the White House Council of Economic Advisers, account balances can reach a minimum of $5,800 with no additional contributions or a maximum of $303,800 by age 18 if maximum contributions are made, assuming average returns on the US stock market.
For many parents, this may seem like a no-brainer; however, the Department of Education hasn’t released any official information as to how Trump Accounts will factor into need-based aid.
Read more: The overlooked group Melania Trump helped add to Trump Accounts
How Trump Accounts may play a role in college aid
The Free Application for Federal Student Aid (FAFSA) assesses your eligibility for student aid, including federal grants, student loans, and work-study programs. To determine your eligibility, it considers the cost of attendance (COA) for a particular school and the Student Aid Index (SAI).
The Student Aid Index considers a family’s financial resources, including parent and student assets, income, and living expenses, to determine how much they can contribute toward college costs.
Experts argue that Trump Accounts could create a hurdle for students in the future by potentially reducing the amount of aid they qualify for if these accounts are treated as student assets, which are assessed at a higher rate than parent assets.
“Financial aid measures two things — income and assets. My understanding is that the Trump Account will be an asset of the student, which can reduce aid by as much as 20 cents on every dollar in the account,” said Jack Wang, wealth advisor at Innovative Advisory Group and host of the “Smart College Buyer” podcast.
Wang notes that withdrawals could have additional implications on financial aid eligibility. “Once money is withdrawn from the account, that can count as income to the student, which can reduce aid by as much as 50 cents on the dollar.”
This differs from parent-owned 529 plans, which are treated as parent assets and assessed at a more favorable maximum rate of 5.64%.
Is a Trump Account the right move for your child?
The $1,000 injection into Trump Accounts for those who qualify is a big bonus, and can certainly make a difference for many families — but there are other account options available that could prove to be more beneficial long-term if your goal is to fund higher education.
For example, 529 plans may not offer the $1,000 seed money, but they offer tax-free withdrawals for qualified education expenses and higher annual contribution limits.
When choosing a savings vehicle for higher education, it’s important to consider how the account you choose will grow with your child, contribution caps, tax implications, and financial aid implications to determine if it’s the right fit for your financial plan.
“The general advice is that if a family has a newborn and can get the $1,000 starter deposit, that is worth doing,” said Wang. “Whether the family should continue to save in that account is a different question entirely. If a family anticipates need-based federal aid, and they aren’t going to get the initial deposit bonus, then there may be better options than a Trump Account.”
Read more: Trump accounts vs. IRAs and 529s: How do they stack up?
