IRS, Treasury Detail Rules for New 'Trump Account' Employee Benefit
New proposed regulations establish the framework for employer contributions to 'Trump Accounts,' including plan document, nondiscrimination, and investment-limitation rules.
The U.S. Treasury and IRS have released proposed regulations detailing the operational framework for "Trump Accounts," a new type of tax-advantaged savings vehicle for children. The guidance is critical for employers, as it outlines the specific requirements for creating a contribution program to benefit employees.
Sophisticated clients will care because these programs, which allow for both direct employer contributions and employee pre-tax contributions via a Section 125 cafeteria plan, represent a significant new employee benefit. However, adoption requires careful structuring to ensure compliance. The regulations mandate a formal written plan, impose nondiscrimination testing, and establish annual contribution limits ($5,000 total, with a $2,500 cap for employers per employee). The rules also strictly limit investments during a beneficiary's childhood to low-cost funds tracking broad U.S. equity indices, excluding sector-specific or ESG-focused funds. Counsel should advise clients on the necessary plan amendments, payroll procedures, and compliance checks required to offer this benefit.