Following its issuance of proposed regulations (PDF) last Spring under Internal Revenue Code (IRC) Section 530A regarding Trump Accounts in general, the IRS recently issued proposed regulations under IRC Section 128 (and under IRC Section 129 regarding certain nondiscrimination requirements applicable to both Trump Accounts and also to dependent care assistance programs such as Flexible Spending Accounts) regarding employer contributions to Trump Accounts.  

Trump accounts in general under IRC Section 530A 

Established as part of the One Big Beautiful Bill Act, Trump Accounts are traditional IRAs established for individuals who have not attained age 18 and who have a Social Security Number. Trump Accounts are intended to promote tax-favorable savings and investment beginning in childhood. During the period that ends before Jan. 1 of the calendar year in which the individual attains age 18 (Growth Period), at which point the regular traditional IRA rules will apply, the following special rules will be applicable: 

• Contributions: There is a $5,000 (subject to COLA increases after 2027) maximum contribution per year, including both contributions made by parents and/or relatives, and new IRC Section 128 employer contributions (limited to $2,500 per employee per year (COLA adjusted after 2027), on a non-taxable basis to the employee for federal income tax purposes. There is no earned income requirement for contributions, the individual for whom the Trump Account is established will generally not be taxable on contributions made to their Trump Account, and contributions made by individuals to Trump Accounts will not be tax-deductible. 

• Pilot Program: Under the Trump Accounts Pilot Program, an election for a $1,000 one-time Pilot Program contribution made by the government under IRC Section 6434(a) does not count toward the annual limit. Under the Pilot Program, the government will establish and fund a Trump Account for children born after 2024 and before 2029 who are U.S. citizens with a Social Security Number. A Trump Account established under the Pilot Program will be able to be subsequently rolled over in a trustee-to-trustee transfer to a rollover Trump Account to which other contributions can be made by family members and by employers under IRC Section 128. 

• Investments: Trump Accounts are only permitted to be invested in a mutual fund or exchange traded fund that tracks an index of primarily U.S. companies (e.g., an S&P fund), does not utilize leverage, and does not have annual fees and expenses in excess of 0.1% of the amount invested. The IRS also recently issued proposed regulations regarding the investment requirements for Trump Accounts. 

• Distributions: Generally, non-rollover distributions from Trump Accounts are not permitted during the Growth Period. When permissibly made, distributions in excess of basis (i.e., contribution amounts) will be taxable; however, Pilot Program contributions and employer contributions under IRC Section 128 will not generate basis. Trump Accounts will not be combined with non-Trump Account IRAs for taxation of distributions purposes. 

Highlights of the proposed regulations 

• Employer can contribute up to $2,500 per employee per year to one or more Trump Accounts established for an eligible employee (i.e., only if younger than age 18) or for the employee’s eligible dependent(s) that will not be treated as taxable compensation to the employee for federal income tax purposes – subject to the $5,000 annual limit, an employer can contribute more than $2,500, but the amount above $2,500 will be taxable to the employee as compensation for federal income tax purposes.  

• • The $2,500 annual employer contribution limit is per employee (rather than individually for the employee and each eligible dependent) and includes all employers of the employee (i.e., including a simultaneous or successive employer, if within the same year). 

• Employer contributions are not taxable to the employee for federal income tax purposes; however, such contributions are subject to FICA and FUTA. 

• Employer must establish a Trump Account contribution program (separate written plan document required) that meets certain requirements, including identification of the plan year, notification of the program’s availability and terms, and certification (employer must verify the existence of a valid Trump Account, but otherwise can rely on employee certifications regarding dependency status and date of birth, unless it has contrary actual knowledge), nondiscrimination (cannot discriminate in favor of IRC Section 414(q) highly-compensated employees and their dependents as to eligibility or contribution amounts), and annual reporting requirements (employer contributions are to be reported on Form W-2, Box 12, using Code TA).  

• Nondiscrimination as to eligibility: The program must be designed to provide contributions that do not discriminate in favor of IRC Section 414(q) highly-compensated employees. Thus, simplest would be to provide the same eligibility requirements for all employees, in which case the program would satisfy the eligibility requirements, even where employees may receive different contribution amounts based on their own elections and their own plan utilization/non-utilization decisions.  

• • A safe harbor is available where the ratio of contributions for dependents of eligible non-highly compensated employees as a group is at least 90% of the contributions for dependents of eligible highly-compensated employees as a group. 

• • Employees younger than 21 or having less than one-year of service with the employer and certain union-represented employees may be excluded for testing purposes. 

• Nondiscrimination as to contributions: The average amount contributed for all non-highly-compensated employees in the employer’s IRC Section 414 controlled group must be 55% or more of the average amount contributed for all highly-compensated employees in the employer’s IRC Section 414 controlled group – the test is to include only the employees receiving any contribution amount for the testing year. 

• • Employees younger than 21 or having less than one year of service with the employer and certain union-represented employees may be excluded for testing purposes. 

• Violations of the nondiscrimination requirements result in contributions being taxable to the highly-compensated employees (not the non-highly compensated employees) for federal income tax purposes. 

• Contributions are available solely for Common Law employees and their dependents – no contributions permitted for or by self-employed individuals or their dependents (i.e., no sole proprietors, partners or greater than 2% S Corporation shareholders) or for dependents of non-employees, such as non-employee consultants and Board members. 
• Employee can contribute salary to Trump Accounts of their dependents (not for themselves) on a pre-tax basis, via an IRC Section 125 cafeteria plan.