US President Donald Trump (R) speaks at the launch of Trump investment accounts in the Oval Office of the White House in Washington, DC, on July 6, 2026.<\/p>\n
Mandel Ngan | Afp | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Following a massive publicity push in the lead-up to the official launch of Trump Accounts<\/a> on July 4, more than 6 million American children have been signed up, according to the latest tally from the U.S. Department of the Treasury. <\/p>\n In the days that followed, there were $50 million in direct contributions and gifts from family and friends into the new investment vehicles, according to\u00a0Bank of New York Mellon<\/a>,\u00a0which is officially managing the initial accounts<\/a>.\u00a0<\/p>\n While the money in a tax-deferred Trump Account, also known as a 530A account, is geared toward long\u2011term\u00a0retirement savings<\/a>, rather than\u00a0education<\/a> expenses, the funds can be withdrawn at 18 without penalty to cover higher education costs.<\/p>\n<\/div>\n Trump Account assets may also affect a student\u2019s need-based college aid eligibility<\/a>, based on how income and balances are reported on the Free Application for Federal Student Aid.\u00a0<\/p>\n<\/div>\n The FAFSA uses a calculation called the \u201cStudent Aid Index\u201d to estimate how much a family can afford to pay for college.<\/p>\n The calculation<\/a> includes both parent and student assets, such as money in a savings or investment account, as well as income, including IRA distributions. Student assets are generally weighted more heavily on the FAFSA, since students are expected to contribute more to pay for their own education.\u00a0<\/p>\n \u201cA Trump Account will be reported as a student asset on the FAFSA,\u201d according to higher education expert Mark Kantrowitz. If it\u2019s treated as an investment account, it could reduce need-based aid eligibility by 20% of the asset value, he said. For example, a\u00a0$10,000 account balance could mean up to\u00a0$2,000 less in need-based grants. <\/p>\n Because the accounts include a one-time\u00a0$1,000 pilot program contribution<\/a>\u00a0from the U.S. Treasury Department for babies born from 2025 through 2028, even those families who don\u2019t make additional contributions could see college aid eligibility reduced.<\/p>\n \u201cThe government gives with one hand while taking back with the other,\u201d Kantrowitz said.<\/p>\n<\/div>\n Alternatively, these accounts could be subject to \u201cIRA-like rules once the growth period has ended,\u201d according to Kalman Chany, a financial aid consultant and author of the Princeton Review\u2019s \u201cPaying for College.\u201d<\/p>\n Once the holder of a Trump Account reaches age 18, the standard rules for traditional IRAs apply.\u00a0\u201cAnd currently, funds in IRAs and other retirement accounts\u00a0are never considered to be assets that are required to be reported on the FAFSA,\u201d Chany said.<\/p>\n<\/div>\n Official guidance from the Department of Education on how Trump Accounts should be reported on the FAFSA is still pending. Despite some uncertainty, experts generally recommend signing up and taking any free money<\/a> when it is offered. \u00a0<\/p>\n \u201cIt would certainly make sense to claim the $1,000 initial seed deposit from Uncle Sam if the child meets the eligibility guidelines,\u201d Chany said. \u201cIn a worst case, one would not lose more aid than the value of the account funded by that seed money.\u201d<\/p>\n Students who do intend to tap the account to help pay for college may also face tax consequences. Withdrawn<\/a>\u00a0earnings are taxed as ordinary income,\u00a0according to guidance from the Treasury Department, and any student income can also impact your aid in future years. The FAFSA formula shields a portion of student income, but income exceeding that threshold can be assessed at up to 50%. <\/p>\n<\/div>\n That\u2019s where some careful financial planning can help, according to Chany.\u00a0<\/p>\n For instance, since the financial aid determination is based on tax data<\/a> from the \u201cprior-prior year\u201d \u2014 or a family\u2019s income from two years earlier \u2014 students can take the distribution from a Trump Account after Jan. 1 of their sophomore\u00a0year in college and not have that income factored into their aid calculation going forward, Chany said. <\/p>\n \u201cTake the distribution after you are out of the financial aid woods,\u201d he said.<\/p>\n<\/div>\n Alternatively, parent-owned 529 college savings plans<\/a> are treated more favorably than student-owned assets when it comes to financial aid. <\/p>\n In this case, a maximum of 5.64% of parental assets will be counted, compared with the 20% rate for student assets.<\/p>\n Also, when you withdraw money from a 529 plan, it is tax-free if the funds are used for qualified education expenses<\/a>. Because Trump Accounts may include a mix of pretax\u00a0and after-tax contributions, distributions are still partially taxable<\/a>.\u00a0<\/p>\n<\/div>\n When it comes to paying for college, experts often consider 529\u00a0plans\u00a0the best way to save because of the tax advantages<\/a> and higher contribution limits. <\/p>\n This year, individuals can gift up to $19,000<\/a> per child without those contributions counting toward the lifetime gift tax exemption \u2014 and for grandparents, there is also a \u201cloophole<\/a>,\u201d which allows them to fund a grandchild\u2019s college savings without impacting their financial aid eligibility.<\/p>\n For comparison, annual contributions to a Trump Account are capped at $5,000 per child.<\/p>\n Subscribe to CNBC on YouTube.<\/strong><\/em><\/a><\/p>\n<\/div>\nRead more CNBC personal finance coverage<\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
The FAFSA math<\/h2>\n
How to plan around Trump Accounts for college<\/h2>\n
The 529 alternative<\/h2>\n
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