Trump Account vs Coverdell ESA: Which Is Right for You?
Last verified: 2026-02-12Bottom Line
- For education (K-12 + college): Coverdell ESA wins — tax-free education withdrawals
- For general savings: Trump Account wins — money can be used for anything at 18
- For free money: Trump Account wins — $1,000 deposit + employer match
- For high earners: Trump Account wins — no income restrictions (Coverdell phases out above $110K/$220K)
- For pure education: 529 plan is usually better than either
The Coverdell ESA (Education Savings Account) has been around since 1998 and shares some similarities with Trump Accounts — both have low contribution limits and are designed for children. But they serve fundamentally different purposes.
Side-by-Side Comparison
| Feature | Trump Account | Coverdell ESA |
|---|---|---|
| Legal basis | IRC §530A (OBBBA 2025) | IRC §530 (1998) |
| Purpose | General long-term savings | Education expenses (K-12 and college) |
| Federal deposit | $1,000 (2025–2028 births) | None |
| Annual contribution limit | $5,000/year | $2,000/year |
| Income restrictions | None | Phases out: $110K single / $220K married |
| Tax on growth | Tax-deferred | Tax-deferred |
| Tax on withdrawals | Ordinary income tax (IRA at 18) | Tax-free for education expenses |
| Investment options | S&P 500 / U.S. equity index only | Almost anything (stocks, bonds, mutual funds) |
| Employer contributions | Up to $2,500/yr tax-free (§128) | Not available |
| Must be used by | No deadline (IRA for life) | Age 30 (or pay penalty + tax) |
| At age 18 | Converts to traditional IRA | Stays as Coverdell (must use by 30) |
Key Differences
1. Income Restrictions
Coverdell ESAs have income phaseouts — you can't contribute if your modified AGI exceeds $110,000 (single) or $220,000 (married filing jointly). Trump Accounts have no income restrictions at all.
2. Contribution Limits
Coverdell ESAs allow only $2,000 per year. Trump Accounts allow $5,000 per year — more than double. Plus, the Trump Account comes with a $1,000 federal deposit and up to $2,500 in employer contributions.
3. Use-by Deadline
Coverdell funds must be used for education expenses by age 30 or distributed (with a 10% penalty on earnings). Trump Account money has no deadline — it becomes a traditional IRA at 18 and can stay invested for life.
⚠️ Coverdell is education-only
If your child decides not to pursue further education, Coverdell funds must still be used by age 30 or face penalties. A Trump Account has no such restriction — the money can be used for anything after 18.
When to Choose a Trump Account
- Income above $110K/$220K — you can't contribute to a Coverdell
- Want free money — $1,000 federal deposit + employer match
- Don't know if child will attend college — no education requirement
- Want higher contribution limits — $5,000 vs $2,000
- Want long-term flexibility — IRA for life, no age-30 deadline
When to Choose a Coverdell ESA
- Saving specifically for education — tax-free education withdrawals
- Want investment flexibility — can invest in anything
- K-12 expenses — covers private school, tutoring, special needs
- Income below phaseout — still eligible to contribute
Frequently Asked Questions
Is the Coverdell ESA being phased out?
No. Coverdell ESAs continue to exist alongside Trump Accounts. They serve different purposes.
Can I have a Trump Account, Coverdell, and 529?
Yes. All three are separate programs with separate limits. Many families use a combination.
What's the difference between §530 and §530A?
IRC §530 is the existing Coverdell ESA law (from 1998). IRC §530A is the new Trump Account law (from OBBBA 2025). They are separate sections of the tax code.
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This is educational content, not tax or financial advice. Source: IRS Notice 2025-68.