How Trump Accounts Change FAFSA calculations and Reduce Need-Based Aid

# Aid

Trump Accounts created under 26 U.S.C. 530A are structured for the exclusive benefit of the child. Parents can open and manage them, but the account belongs to the child and control transfers outright at age 18. That ownership matters for the Free Application for Federal Student Aid (FAFSA).

How the FAFSA treats student-owned vs parent-owned assets

Index (SAI) using different assessment rates. Parent assets are assessed at a maximum of 5.64%. Student assets are assessed at 20% with no protection allowance. Because Trump Accounts are defined in statute as belonging to the child, the FAFSA treats them like UGMA/UTMA custodial accounts.

That difference is concrete. For every dollar a student owns in a reportable account, the SAI increases by $0.20. For a parent-owned 529, the balance raises the SAI by up to $0.0564 per dollar. The practical result: money in a Trump Account reduces need-based aid much more than the same money in a parent 529.

Real numbers: the $25,000 example

Investor models a reasonable savings path: a $1,000 initial deposit plus $2,000 a year invested in a U.S. stock index fund could reach about $25,000 by high school senior year. On the FAFSA:

• Trump Account (student asset at 20%): reduces aid by $5,000 on a $25,000 balance.
• UGMA/UTMA custodial account (student asset at 20%): also $5,000 reduction.
• Parent-owned 529 (parent asset at up to 5.64%): reduces aid by up to $1,410 on the same balance.
• Grandparent-owned 529 (not reported on FAFSA under current rules): $0 reduction in the SAI.

That is a $3,590 gap in annual aid eligibility between a student-owned Trump Account and a parent 529. If the family never spends the account and the student files the FAFSA for four years, that gap can approach $14,000 across the college career.

Timing and tax treatment that worsen the FAFSA impact

How Trump Accounts compare with UGMA/UTMA and 529 plans

On FAFSA impact and control at age 18, Trump Accounts and custodial accounts are effectively the same. The differences are:

• Taxes and investment limits: Trump Accounts grow tax-deferred, limit investments to low-cost U.S. index funds, and are locked until 18. UGMAs have no contribution limit beyond gift-tax rules and allow withdrawals anytime, but earnings can trigger the kiddie tax annually.
• 529 plans: Win on financial-aid treatment (parent ownership, lower assessment rate), tax-free qualified withdrawals, and flexibility for timing. The major trade-off is that a 529 cannot capture the federal $1,000 newborn deposit tied to 530A accounts.

If need-based aid is a planning priority, the student-ownership feature of Trump Accounts creates a clear disadvantage compared with parent-controlled 529 accounts.