When Congress passes a bill with a title like the “One Beautiful Bill,” you can already guess who had their fingerprints on it. Out of this legislation comes the so-called Trump Account, a new hybrid savings vehicle that sits somewhere between a Section 529 Plan, a Roth IRA, and a cafeteria plan add-on. While many questions remain unanswered, employers should start familiarizing themselves with the basic framework.
How Do Trump Accounts Operate?
No contributions can be made before July 4, 2026, meaning employers and families have almost a year to evaluate whether they want to play in this sandbox.
Starting that date, contributions may be made annually until the child beneficiary reaches age 18. Contributions can come from parents, employers, extended family, or “others,” subject to an annual cap of $5,000 (unchanged through 2027).
Children born between December 31, 2024 and January 1, 2029 will automatically receive a $1,000 Federal contribution, unless parents opt out. In those cases, the IRS will open an account for the child unless one is already established.
Withdrawals are subject to restrictions—qualified education expenses, certain life events, and specific timing rules. In other words, think 529 Plan meets IRA rules: stray from the “qualified” use, and the IRS will hit you with penalties.
Employer Angle: Trump Accounts as an Employee Benefit
Employers are permitted to contribute up to $2,500 per year (steady through 2027) into a Trump Account for an employee or their dependent. These employer contributions are excluded from gross income—meaning they’re treated as a pre-tax benefit.
Administration will likely mirror that of a Section 125 Cafeteria Plan. That means:
· A written plan document will be required.
· Employee notifications must be issued.
· Contributions must pass nondiscrimination testing, similar to the rules for dependent care accounts.
That last point is critical: the IRS won’t let employers skew Trump Account contributions toward highly compensated employees. Fail the test, and corrections will be required.
Next Steps for Employers
While the Trump Account could be marketed as a patriotic savings tool with employee appeal, practical hurdles remain. Employers need clarity on key issues, including:
· Must employees open their own accounts before employers can contribute?
· Will employees be allowed to make pre-tax deferrals into these accounts?
· What remedies will be available if an employer fails nondiscrimination testing?
· How are contributions reported on Form W-2?
Until these questions are answered through IRS guidance and further regulations, the Trump Account remains more concept than practical tool.
Bottom Line
For now, Trump Accounts are a political talking point dressed up as a savings vehicle. Employers should keep them on their radar because, if the IRS and Treasury work out the details, these accounts may offer a low-cost benefit with real tax advantages.
But as with most shiny new benefits, the devil is in the details—and the IRS hasn’t published those yet. Employers should hold off on rushing into plan design until they can see what’s under the hood.
