New Guidance on Trump Accounts for Employers

Employers interested in adding Trump Accounts to their benefits offerings now have preliminary regulatory guidance to do so. The IRS has issued proposed regulations under IRC Section 128 which provide details on employer contributions, employee salary reductions, program requirements, and nondiscrimination testing.

A Recap: Trump Account Contribution Programs (TACP)

Key provisions for Trump account contribution programs (also known as Section 128 accounts).

• In General. Trump Accounts are a new type of tax-advantaged individual retirement account created by the One Big Beautiful Bill Act in 2025. Accounts may be established for individuals under age 18.
  
  
• Employer Contributions. Employer contributions for dependents of employees (or employees if they are under age 18) are permissible. Employer contributions are limited to $2,500 per employee each year. The $2,500 limit is aggregated for all dependents of an employee and applies across all employers.
  
  
• Employee Contributions via Section 125 Plans. Employees may make salary reduction contributions through a Section 125 plan, but only for a minor dependent’s account—not for an employee who is under age 18. These salary reduction contributions would be excluded from income.
  
  
• No Irrevocability Rule. Cafeteria plans will need to be amended to include the TACP benefit and clarify that employees are permitted to prospectively change or revoke their TACP elections at least monthly. (Cafeteria plan regulations will be amended to reflect this requirement.)
  
  
• $5,000 Limit Per Child. The overall annual contribution limit for each child is $5,000, including any employer contributions.
  
  
• Limits Indexed. The annual limit per child is $5,000 in 2026. The annual limit per employee (aggregated for all dependents) is $2,500 in 2026. Both limits will be adjusted annually for inflation beginning in 2027.
  
  
• Written Plan Document Required. A Trump Account Contribution Program (TACP) must be established in written plan, provide notice of program availability and terms to eligible employees, and report contributions. A formally adopted TACP is required for salary contributions to be excluded from income.
  
  
• Eligible Employees. Regular W-2 employees are eligible to participate. Self-employed individuals, including partners, sole proprietors, and 2% S-Corp shareholders are not eligible to participate in a TACP nor receive employer contributions that are excluded from income.
  
  
• No Restriction on Trustee/Vendor. Employers may not limit contributions to selected Trump Account trustees or vendors. Because only one Trump Account may be established for each beneficiary, this rule helps ensure employees can receive tax-favored contributions even if a dependent’s account is held with a different trustee. Unlike a 401(k) plan, where the employer selects a single trustee or vendor, TACP contributions cannot be limited to one provider. This requirement is likely to create additional administrative complexity for employers.
  
  
• Subject to Employment Taxes. Contributions are excluded from wages but remain subject to employment taxes, such as FICA and FUTA.
  
  
• Employer Verification and Reporting. Employers may generally rely on employee certifications regarding a beneficiary’s relationship, dependent status, and age. However, they must use a reasonable method to verify that contributions are made to a valid Trump Account. Employers must also report annual contributions in Box 12 of Form W-2 using code “TA.”
  
  
• Corrections. If an employer determines that a contribution was incorrectly identified as a Trump Account contribution, in whole or in part, the employer must notify the trustee in writing. A 21-day safe harbor period applies for these notices. Unless the trustee receives a corrective notice or has contrary knowledge, the trustee may rely on the employer’s identification of the contribution as a valid Trump Account contribution.
  
  

Nondiscrimination Testing Provisions

The newly proposed Trump Account regulations introduced clarifications to existing Dependent Care FSA tests and outlined that TACPs are subject to the same nondiscrimination testing rules. In short, the program cannot favor HCEs as to benefits provided or eligibility. There is also a math-based element whereby the average benefit for Non-Highly Compensated Employees (NHCEs) participating in the program must be at least 55% of the average benefit for Highly Compensated Employees (HCEs) participating in the program.

If a program fails nondiscrimination testing, it will remain qualified for NHCE contributions. However, HCE contributions would need to be corrected or treated as taxable income to the HCEs.
 

Effective Date

The proposed regulations apply for plan years beginning on or after the date final regulations are published. However, plan sponsors can rely on the proposed rules prior to finalization.
 

Action Items

Employers will want to evaluate whether to add a Trump Account Contribution Program to their benefits offerings. Doing so would require a separate plan document, amendments to cafeteria plan documents, employee communications, and administrative procedures for verification and contributions to multiple trustees or vendors.

All initial Trump Accounts must be opened on the government-sponsored platform, Robinhood. As of this writing, the Robinhood platform is not set up to receive employer/employee contributions from employers. However, once an initial account is established, individuals may roll over their account balance to another trustee/vendor. It is reasonable to expect most financial institutions will be quickly establishing systems to receive Trump Account rollovers as well as employer contributions.

References

• Proposed Regulation (REG-101355-26)