Recent Trump accounts guidance: Implications for employers and beyond

Trump Account Background

The One, Big, Beautiful Bill Act added section 530A to the Internal Revenue Code of 1986, as amended (Code) to create Trump accounts, which are first effective as of July 4, 2026. A Trump account is a type of traditional individual retirement account (IRA) established for the exclusive benefit of eligible children. Five types of contributions are permitted: (i) the Pilot Program contribution of $1,000, (ii) qualified general contributions (funded by states, the United States, the District of Columbia, tribal governments, or certain section 501(c)(3) tax-exempt organizations) for members of a qualified class of account beneficiaries, (iii) Code Section 128 employer contributions, (iv) qualified rollover contributions, and (v) contributions from other sources (such as the individual, parents, or any other person). The proposed regulations confirm that an eligible individual may only have one Trump account containing funds at any given time. Trump accounts have two periods: the growth period (which lasts until December 31 of the calendar year in which the eligible child turns 17), and the post-growth period.

During the growth period, a Trump account is subject to certain special rules that do not apply to traditional individual retirement amounts (IRAs) established under Code Section 408: (i) funds can be invested only in eligible investments, (ii) contributions are limited to $5,000 annually (although certain contributions are exempt from this limit), (iii) distributions are generally prohibited, (iv) no deduction is allowed for contributions, and (v) trustees have similar but different reporting requirements from trustees of IRAs. After the growth period, most of these special rules cease to apply and the rules governing IRAs generally apply. 

As employers, financial institutions and individuals prepare for Trump accounts to be rolled out in July 2026, the following items may help inform their approach: 

Employer Contributions to Trump Accounts

The Notice provided some initial guidance regarding employer contributions to Trump accounts. Employers may contribute up to $2,500 annually per employee (not per dependent), which is subject to cost-of-living adjustments after 2027. Employer contributions must be made pursuant to a written Code Section 128(c) program that satisfies certain requirements regarding nondiscrimination, eligibility, notification, and statements similar to a Code Section 129 dependent care assistance programs. Employers may also offer employees the ability to make cafeteria plan pre-tax contributions to their dependents’ Trump accounts, which count towards the $2,500 employer contribution limit. Employer contributions to an employee or their dependents’ Trump accounts, are not taxable to the employee or dependent at the time of contribution, and do not create basis in the Trump accounts. The IRS and Treasury Department intend to provide additional guidance regarding the coordination of employer Trump account programs and cafeteria plans.

Trustee Obligations

During the growth period, Trump accounts are not subject to the IRA reporting requirements of Code Section 408(i). Instead, Trump accounts are subject to special reporting requirements under Code Section 530A(i). Trump account trustees must report information annually regarding the source of contributions and basis in the contract, and must submit a report within 30 days of receiving a qualified rollover contribution. A person that fails to provide a required report under Code Section 530A(i) is subject to a penalty under Code Section 6693(a) unless the failure is due to reasonable cause. Trustees must have procedures in place to prohibit contributions that would exceed the annual contribution limit. Trump accounts must be maintained pursuant to a written governing instrument and must reflect the rules that will apply both during and after the growth period. 

Initial and Rollover Trump Accounts

The proposed regulations clarify that an election to open an initial Trump account may be made by an “authorized individual” in the following hierarchy: (i) the person making a Pilot Program election, (ii) legal guardian, (iii) parents, (iv) adult siblings, and (v) grandparents. The individual who opens the Trump account is responsible for selecting investments, making rollovers, and selecting a successor responsible party for the Trump account. As part of the proposed regulations, the Department of Treasury and IRS have also released an initial Trump account election form (Form 4547), which parents, guardians, and other authorized individuals may use to set up initial Trump accounts for an eligible child. The Form also includes a checkbox for participation in the $1,000 Pilot Program contribution.

Before January 1 of the year in which the eligible individual attains age 18 (that is, prior to the end of the growth period), a rollover Trump account may only be funded by a trustee-to-trustee transfer of the entire account balance from the individual’s existing Trump account. After the growth period, Trump accounts may be rolled over subject to the IRA rules. While Trump accounts are permitted to be rolled into an ABLE account, they are not eligible for rollover into a Section 529 plan.

During the growth period, funds in a Trump account may only be invested in eligible investments, which include mutual funds or exchange traded funds registered under the Investment Company Act of 1940 (Funds) that track an index of primarily US companies, such as the Standard and Poor’s 500 stock market index. Annual fees and expenses cannot be more than 0.1 percent of the balance of the investment in the Funds. Additionally, a Fund may not use leverage, such as borrowings, derivatives, or other strategies that are economically equivalent to borrowings.

State Tax Implications

In states that are decoupled from federal tax law and impose a personal income tax, investment earnings under Trump accounts may become taxable to the beneficiaries, resulting in a “kiddie tax” on the earnings. Some states also allow employers to deduct payments made to Section 529 plans. As a result, in some states there may be more of a tax incentive for both parents and employers to contribute to Section 529 plans rather than a Trump account. 

Conclusion

Trump accounts may offer an additional opportunity for employers to provide a valuable benefit to their employees. Further, banks, trust companies and other financial institutions may view the establishment of Trump accounts as an opportunity to serve as trustees, managers and other service providers to these Trump accounts. Additional guidance would be welcome as employers and service providers build out their programs.

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