Since the official launch on July 4, more than 6 million American children have been enrolled in Trump Accounts, with $50 million in contributions and gifts deposited in the first days, according to the U.S. Department of the Treasury and Bank of New York Mellon, which manages the accounts.
Though Trump Accounts, formally known as 530A accounts, are designed as tax-deferred retirement savings vehicles, account holders can withdraw funds at age 18 without penalty to cover higher education expenses. However, these accounts may impact a student’s eligibility for need-based financial aid. The FAFSA determines college aid eligibility using the Student Aid Index, which factors in both parental and student assets and income. Student assets typically carry more weight in the calculation since students are expected to contribute more toward their own education costs.
According to higher education experts, Trump Account balances will be reported as student assets on the FAFSA. If treated as investment accounts, they could reduce need-based aid eligibility by 20 percent of the asset value. For instance, a $10,000 account balance could result in up to $2,000 less in need-based grants. The Treasury Department’s one-time $1,000 pilot contribution for babies born between 2025 and 2028 means that even families making no additional contributions could see aid eligibility affected.
However, uncertainty remains about the exact treatment of Trump Accounts on the FAFSA, as official guidance from the Department of Education is still pending. Experts note that the accounts could potentially be treated under IRA-like rules once the holder reaches age 18, which could change how they are reported on the FAFSA. Additionally, students who withdraw earnings face tax consequences, as distributions are taxed as ordinary income. Financial planning strategies, such as timing withdrawals after the sophomore year of college, can help minimize the impact on aid calculations in subsequent years.
Experts generally recommend families claim the $1,000 initial seed deposit from the government when eligible. For comparison, traditional 529 college savings plans remain more favorable for education savings, with parental assets counted at a maximum of 5.64 percent for aid purposes and tax-free withdrawals for qualified education expenses. Trump Accounts have annual contribution limits of $5,000 per child, compared with higher limits for 529 plans.
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