The Department of the Treasury and the Internal Revenue Service (IRS) have issued two sets of proposed regulations relating to Trump Accounts, a new type of individual retirement account created by the One, Big, Beautiful Bill Act.
The first proposed rule, issued on August 11, addresses employer contributions to Trump Accounts and nondiscrimination rules under new Section 128 of the Internal Revenue Code. This rule covers how employers can set up contribution programs, contribution limits, employment tax treatment, and required testing to ensure programs do not favor highly compensated employees.
The second proposed rule, issued on August 21, addresses eligible investments for Trump Accounts during the Growth Period. This rule defines what types of mutual funds and ETFs qualify, as well as index requirements, fee limits, and trustee responsibilities.
Although comments on these rules are not due until September and October, respectively, both sets of proposed regulations may be relied upon by employers in the interim before final regulations are published.
What Are Trump Accounts?
Trump Accounts are a new type of individual retirement account (IRA) created specifically for children. Here are the key features:
- Who they are for: A Trump Account may be established for a child age 17 or younger. Each child can have only one Trump Account.
- Growth Period: The Growth Period runs from the date the account is established through December 31 of the year the child turns 17. During this period, special rules apply regarding contributions, investments, distributions, and reporting. Some of the special rules are described in the proposed Treasury regulations.
- After the Growth Period: Once the Growth Period ends, standard traditional IRA rules apply to the account.
- Trustees and Investments: Trustees of Trump Accounts can offer only simple, low-cost funds that follow a qualified index, and they must clearly tell account holders which fund their money goes into by default and how any earnings are reinvested.
- Government Pilot Contribution: The government will make a $1,000 pilot contribution to Trump Accounts for eligible children born in 2025 through 2028.
- Overall contribution limit: The total annual contribution limit for a Trump Account during the Growth Period is $5,000 (from all sources).
Employer contributions to Trump Accounts (Section 128) and nondiscrimination rules
Trump Account Contribution Programs
Employers can establish a Trump Account Contribution Program—a separate written plan that allows the employer to make contributions to employees’ or their dependents’ Trump Accounts. These contributions are excludable from the employee’s income up to $2,500 per year (indexed for inflation after 2027). Employer contributions can only be made during the Growth Period.
The program must be a written plan that specifies:
- Eligible employee classes
- Contribution rules and amounts
- Designation procedures (how employees identify recipient accounts)
- Certification, notice, and reporting procedures
- The plan year
- Correction procedures for errors
Key Requirements for the Written Plan
- The employer must follow the terms of its written plan.
- Eligible employees must receive reasonable notification of the program’s availability and terms.
- Employers must provide employees with an annual written statement (which can be included on Form W-2) showing contributions made during the prior year.
Employee Certification and Verification
Employers may rely on written employee certifications regarding:
- That the account beneficiary is the employee or the employee’s dependent
- The beneficiary’s date of birth
- No disqualifying facts are known
Employers may not rely solely on employee certifications to verify that the recipient account is a valid Trump Account. The employer must use a method reasonably designed to verify the account through the Trump Account trustee, the employer’s payroll processor, or service provider.
Annual Contribution Limit ($2,500 per Employee)
- The $2,500 limit applies per employee, not per dependent. That means that an employee with multiple children still has a total limit of $2,500.
- If an employee works for multiple employers, the aggregate from all employers cannot exceed $2,500.
- Excess employer contributions must be included in the employee’s gross income.
- Employers may, but need not, allow employees to allocate contributions among multiple dependents’ accounts within the $2,500 limit.
- Employers may, but need not, allow employees to make contributions through salary reduction under a Section 125 cafeteria plan, but only for contributions to a dependent’s Trump Account. Any employee salary reduction contribution is considered an employer contribution and counts against the $2,500 employer limit.
The employer contribution may be in the form of a match to the $1,000 pilot contribution. Such a matching contribution would benefit employees with children born in 2025 through 2028. Employers may make a contribution to an employee’s eligible child’s Trump Account and can structure that contribution to equal the $1,000 pilot contribution. If the employer limits the contribution to children eligible for the Pilot Contribution, the benefit would apply to employees with eligible children born in 2025 through 2028, subject to nondiscrimination rules, as described below
No Trustee Restrictions
Employers may not limit contributions to Trump Accounts held by a particular trustee or trustees. Because each child can have only one Trump Account, restricting which trustees can receive contributions would effectively prevent some employees from participating in the program.
Who Qualifies as an “Employee”
The proposed rules use the common-law standard for “employee.”
Self-employed individuals are not eligible to participate. This includes sole proprietors, partners, and S corporation 2% shareholders (even if such shareholders are treated as W-2 employees). However, these sole proprietors, partners, and S Corporations can maintain a program for their common-law employees.
Employer-Trustee Communications
- Employers must identify contributions as “Section 128 contributions” (i.e., employer contributions) to the trustee at the time of contribution.
- If a contribution is later determined not to qualify, the employer must notify the trustee within 21 calendar days (a safe harbor period).
Employment Tax Treatment
Employer Trump Account contributions have a unique tax treatment:
- Excluded from federal income tax (up to the $2,500 limit, as adjusted)
- Subject to FICA, FUTA, and RRTA taxes—they are wages for employment tax purposes.
- Similar to 401(k) contributions, Trump Account contributions are not subject to federal income tax withholding but are subject to FICA withholding.
Nondiscrimination Rules
The nondiscrimination rules are meant to prevent an employer from using Trump Account contributions as a tax-favored benefit mainly for highly compensated employees. A compliant employer contribution program should be broad-based, objectively designed, and must satisfy three nondiscrimination tests:
- Eligibility classification test Eligibility classifications must be reasonable, based on objective business criteria, and nondiscriminatory. Employees who have not attained age 21 or completed a year of service may be excluded, as may union employees, subject to collective bargaining on benefits. However, the exclusion from eligibility of any other class of employees must satisfy either a facts-and-circumstances test or a numerical safe harbor.
- Contributions and benefits test The program must not discriminate in favor of highly compensated employees (HCEs) in terms of contributions or benefits. A Trump Account program that provides the same employer contribution formula and allows salary reduction contributions on the same terms for all eligible employees satisfies this requirement.
- Average benefits test The average benefits for non-HCEs must be at least 55% of the average benefits for HCEs. For purposes of this test, average benefits provided to a group of HCEs or non-HCEs for a plan year equals the total dollar amount of contributions provided under all Trump Account contribution programs of the employer during the plan year, divided by the number of employees in that group to whom any such contributions are provided during the plan year, via salary reduction or direct employer contribution. Importantly, employees who receive no Section 128 contribution during the plan year are disregarded in this average benefits test.
A program could pass one test and fail another. For example, an employer might make the same contribution for every eligible participant. That satisfies the contributions and benefits test, but if eligibility for the program is limited only to senior management, the program could still fail the eligibility classification test.
Pilot Match Safe Harbor
Employers may make a contribution to an employee’s eligible child’s Trump Account and can structure that contribution to equal the $1,000 pilot contribution. If the employer limits the contribution to children eligible for the pilot contribution, the benefit would apply to employees with eligible children born in 2025 through 2028.
Employers that match the government’s $1,000 pilot contributions program receive a safe harbor from the contributions/benefits test and the average benefits nondiscrimination test, if the match is offered on the same terms to all non-excluded employees. Matching contributions must still satisfy eligibility nondiscrimination requirements.
This is a valuable simplification for employers that want to match the pilot contribution without the complexity of full nondiscrimination testing.
Remediation of Nondiscrimination Failures
If the average benefits test fails, employers can correct the failure by including the excess benefit amounts in affected HCEs’ gross income by the Form W-2 deadline for the year.
Dependent Care Assistance Programs (Section 129)
The proposed rules also provide parallel nondiscrimination guidance for Dependent Care Assistance Programs (DCAPs), including:
- The same eligibility safe harbor period as Trump Account programs
- Average benefits test clarifications
- Remediation procedures for test failures
Eligible investments for Trump Accounts (Section 530A)
What Are Eligible Investments?
During the Growth Period, Trump Account funds may only be invested in “eligible investments.” An eligible investment is a mutual fund or ETF that meets all of the following requirements:
- Tracks a qualified index The fund’s objective must be to replicate the performance of a qualified index.
- No leverage The fund must not use leverage that would materially increase the risk of loss.
- Low fees Annual fees and expenses must not exceed 0.1% of the fund’s net asset value.
- Specific fund types Actively managed funds, fund-of-funds tracking multiple indices, and ESG index funds are not eligible investments.
Trustee Procedures
Trustees of Trump Accounts have specific obligations:
- Offer only eligible investments Trustees must ensure all investment options meet the eligibility requirements.
- Establish a default Trustees must designate a default eligible investment for the account.
- Monitor investments Trustees must review investments at least every 12 months to confirm continued eligibility.
- Dispose of ineligible investments If an investment ceases to be eligible, the trustee must dispose of it within 30 days.
- Correct errors Administrative errors must be corrected within 30 days.
- Disclosure Trustees must disclose the default investment and how dividends are invested.
Action items for employers and plan sponsors
The following action items should be considered in light of the proposed rules.
- Review whether to establish a Trump Account contribution program. Consider the potential benefits of offering this as part of your employee benefits package.
- Consider whether to match the $1,000 pilot program contribution. Employers may take advantage of the nondiscrimination safe harbor by ensuring the match is available on the same terms to all non-excluded employees.
- Prepare the required written plan document. Include all required provisions: eligible employee classes, contribution rules, designation procedures, certification/notice/reporting procedures, plan year, and correction procedures.
- Coordinate with payroll providers and Trump Account trustees on contribution mechanics and verification procedures.
- Establish procedures with vendors to verify that contributions go to valid Trump Accounts. Employers cannot rely solely on employee certifications—use a method reasonably designed to verify the account through the trustee, payroll processor, or service provider.
- If offering salary reduction for dependent Trump Account contributions, review and amend cafeteria plan documents, as necessary. Ensure the plan allows at least monthly prospective election changes.
- Work with payroll processors to update Form W-2 reporting to include Section 128 employer contributions in Box 12 with code TA.
- Existing DCAP sponsors should also review their plans against the new nondiscrimination guidance.
Final takeaway
These are proposed rules and are not yet final. However, employers may rely on them in the interim before final regulations are published. The IRS has indicated that the final rules for employer contributions will apply to plan years beginning on or after the date final regulations are published, and the eligible investment rules will apply to taxable years beginning on or after January 1, 2026.
Employers and plan sponsors considering a Trump Account contribution program should work closely with legal counsel, tax advisors, and benefits consultants to evaluate whether a Trump Account contribution program aligns with their benefits strategy, ensure proper plan documentation and administrative procedures are in place, and coordinate with payroll and recordkeeping systems.
We will continue to monitor developments and provide updates as the rules are finalized.