Financial terms, explained clearly.

A tax-advantaged savings plan designed for education. Qualified expenses can receive favorable federal tax treatment. State rules, investment options, and nonqualified withdrawal consequences vary.

A tax-advantaged account for eligible people with disabilities. A qualifying transfer of the entire child savings account balance may be made to the beneficiary’s ABLE account during the calendar year they turn 17.

Amounts in an account that have already been taxed. Ordinary after-tax contributions generally create basis; federal pilot deposits, qualifying employer contributions, and qualified general contributions do not. IRA rules determine the tax-free portion of a distribution.

An account an adult manages for a minor under state law. The assets belong to the child, and control transfers at the applicable age. Investment income, financial aid, and withdrawal rules differ from those of an IRA.

A fund’s annual operating expenses as a percentage of assets. Eligible investments in this federal child savings program must meet an annual fee and expense ceiling of 0.10% during the growth period. Low fees do not remove market risk.

The Free Application for Federal Student Aid. Financial-aid programs have their own income and asset rules. Consult current application instructions and the school’s financial-aid office about account balances, withdrawals, or conversions.

The special period ending on December 31 of the year before the beneficiary turns 18. It has specific investment, contribution, and distribution restrictions; it does not end on the eighteenth birthday itself.

A mutual fund or exchange-traded fund designed to follow a market index. Only funds meeting the program’s investment requirements are permitted during the growth period. Index investing can produce losses as well as gains.

A minimum withdrawal required from certain retirement accounts at the applicable statutory age. Under current law, that age is 75 for people born in 1960 or later. The rules may change long before today’s children reach that age.

A transfer between eligible tax-advantaged accounts that follows specific rules. During the growth period, a qualified account-to-account rollover must move the entire balance directly between trustees.

Moving eligible traditional IRA funds to a Roth IRA. The conversion can create taxable income; future qualified withdrawals may be tax-free. Whether and when to convert depends on the person’s circumstances.

An individual retirement account with tax-deferred treatment. Trump Accounts are a special type of traditional IRA during childhood; most ordinary traditional IRA rules apply from January 1 of the year the beneficiary turns 18.