IRS Issues Pair of Proposed Trump Account Regulations Addressing Employer Contributions and Eligible Investments
Last month, the Internal Revenue Service and the Department of the Treasury published two sets of proposed regulations clarifying the operational and administrative requirements for Trump Accounts, a new type of individual retirement account that may be established for the benefit of minor children under the age of 18 with a valid social security number.
Trump Accounts are a creation of the One Big Beautiful Bill Act which allows employers to contribute up to $2,500 per year (indexed for inflation after 2027) to the Trump Accounts of employees or their dependents tax free when made through a qualifying "Trump Account Contribution Program." Employers may also offer their employees the opportunity to make pre-tax salary-reduction contributions to the Trump Accounts of their dependents through a Section 125 cafeteria plan.
Together, the proposed regulations clarify the operational framework within which employers may make Trump Account benefits available to their employees, with supplement guidance on the required elements of Trump Account Contribution Programs and "eligible investments" in which Trump Account funds can be invested.
Background
Under Section 128 of the Internal Revenue Code, an employer's Trump Account Contribution Program must be set forth in a separate written plan that addresses specific rules and procedures governing eligibility, contributions, reporting, notices and correcting administrative errors. Once made, Trump Account contributions must be invested in mutual or exchange traded funds that track a "qualified index" of primarily U.S. companies until December 31 of the year the account beneficiary turns age 17 (the "growth period").
What Employers Need to Know
The proposed regulations provide helpful clarifying guidance for employers that are considering making Trump Account benefits available to employees, including the following:
Proposed Treas. Reg. § 1.128–1 - Employer Contributions to Trump Accounts
- Annual Employer Contribution Limit: The $2,500 (indexed) annual limit on employer contributions is an aggregate limit applied on a per employer (rather than per dependent) basis.
- Notice and Reporting: Employers must provide reasonable notice of the availability and terms of its Trump Account Contribution Program and furnish a written statement showing excludable employer contributions for the prior calendar year (reporting via Form W-2 using code "TA" in Box 12 satisfies this requirement).
- Eligibility Certifications: Employers may rely on employee certifications of beneficiary eligibility but must also use reasonable methods to verify contributions are being made to valid Trump Accounts through information furnished by the trustee or other service providers.
- Salary-Reduction Contributions: Section 125 cafeteria plans offering Trump Account benefits must specifically describe the employer’s Trump Account Contribution Program and permit participants to prospectively change or revoke elections at least monthly before salary becomes currently available.
- Non-Discrimination Requirements: Trump Account Contribution Programs are subject to nondiscrimination testing requirements parallel to those imposed on Dependent Care Assistance Programs, including the Contributions and Benefits Test, Eligibility Test and 55% Average Benefits Test.
Proposed Treas. Reg. § 1.530A–3 - Eligible Investments for Trump Accounts
- Qualified Index; ESG Exclusion: The term "qualified index" expressly excludes any index that has, or is marketed as having, a focus on environmental, social, or governance (ESG) factors and any fund tracking an ESG index is disqualified as an eligible investment in which Trump Account funds may be invested.
- Fee Limitations: Annual fees and expenses of an eligible investment may not exceed 0.1% of the balance of the investment in the fund, which encompasses all annual, periodic, transactional and one-time charges (such as purchase or redemption fees) charged to holders directly, less any fee waivers or reimbursements reported in the fund's prospectus.
- Default Investments: Trustees must establish a default eligible investment (either a single fund or a combination of eligible investments in specified proportions) in which all funds will be invested unless the account beneficiary directs otherwise and must disclose how dividends and distributions will be invested absent contrary instructions from the account beneficiary.
For more information on the proposed regulations or how Trump Account benefits can be offered as an employee benefit, please contact Nick Bertron, Tom Dowling or the Stinson LLP contact with whom you regularly work.
