Trump Accounts and Disability

If your child has a disability, you may wonder how a Trump Account fits into their long-term financial plan. The rules depend on whether the child is under or over age 18. Here is what you need to know.

Before Age 18: Standard Rules Apply

During the growth phase, a Trump Account follows the same rules for all children — including those with disabilities. There is no special disability exception that allows early withdrawal before age 18.

The only exceptions to the no-withdrawal rule are the same three that apply to everyone:

• Rollover to another Trump Account
• Return of excess contributions over the $5,000 annual limit
• Death of the beneficiary

After Age 18: IRA Disability Exception

When the Trump Account converts to a traditional IRA at age 18, things change significantly. Standard IRA rules include a disability exception under IRC Section 72(m)(7).

If the account holder meets the IRS definition of disability, they can withdraw funds from the IRA without paying the 10% early withdrawal penalty. This applies even if they are under age 59 1/2.

What Is the IRS Definition of Disability?

The IRS has a specific standard. To qualify, the person must be:

• Unable to engage in any substantial gainful activity due to a physical or mental condition
• The condition must be expected to last continuously for at least 12 months or result in death
• A physician must verify the condition

ABLE Account Interaction

ABLE accounts (Achieving a Better Life Experience) are tax-advantaged savings accounts for individuals with disabilities that began before age 26. They offer important benefits:

• Earnings grow tax-free when used for qualified disability expenses
• Up to $100,000 in an ABLE account is excluded from Medicaid asset limits
• Funds can cover housing, education, transportation, health care, and more

After age 18, when the Trump Account is a traditional IRA, it may be possible to roll funds from the IRA into an ABLE account. This rollover can be tax-free, subject to the ABLE account's annual contribution limits. This strategy could help protect benefits eligibility.

Medicaid Planning Considerations

Many families with disabled children rely on Medicaid for health care and support services. Medicaid has asset limits that vary by state. Here is how a Trump Account may affect eligibility:

• Before age 18: The Trump Account may not count as an accessible asset because the child cannot withdraw from it. However, state rules vary.
• After age 18: As a traditional IRA, the account is the child's asset. It may count toward Medicaid asset limits depending on your state's rules.

This is where an ABLE account rollover strategy can be valuable. Moving IRA funds into an ABLE account may help keep the child within Medicaid asset limits while preserving access to the money for disability-related expenses.

For more on how Trump Accounts interact with means-tested benefits, read our guide on Trump Accounts and Medicaid.