IRS Issues Proposed Regulations on Contributions to Trump Accounts: What Employers Need to Know

Takeaways

• Employers may contribute up to $2,500 per employee to Trump Accounts in 2026 and 2027 on a tax-favored basis, subject to applicable requirements.
• Employers offering Trump Account contributions must establish a separate written program addressing eligibility, contributions, administration, reporting, and corrections.
• Employers will need procedures to verify Trump Accounts, coordinate contributions with potentially multiple trustees, and correct contributions that do not qualify.
• Employers should evaluate payroll tax treatment, Form W-2 reporting, nondiscrimination testing, vendor capabilities, and plan-document changes before implementing the benefit.

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The U.S. Department of Treasury and IRS recently issued proposed regulations addressing employer contributions to “Trump Accounts,” including the requirements employers must satisfy if they choose to offer Trump Account contributions as an employee benefit. Separately, the U.S. Department of Labor recently issued Technical Release 2026-02, concluding that Trump Accounts and related employer contribution programs generally are not subject to Title I of ERISA.

Trump Accounts are a new form of traditional IRA established under Code Section 530A for eligible individuals under age 18. During the account beneficiary’s “growth period” (generally ending on December 31 of the year the beneficiary turns 17), special restrictions apply, including limits on distributions, annual contributions, investments, leverage, and fees. Once the growth period ends, the account generally becomes subject to ordinary traditional IRA rules.

For employers, new Code Section 128 creates a tax-favored framework for contributing to an employee’s Trump Account or to the Trump Account of an employee’s dependent. For 2026 and 2027, up to $2,500 of qualifying employer contributions may be excluded from the employee’s federal gross income, with inflation adjustments after 2027. Importantly, that limit applies per employee, not per child or per account, and includes qualifying contributions made by any employer of that employee.

Self-employed individuals may not participate in a Section 128 employer contribution program for themselves. This includes partners, sole proprietors, individuals serving solely as directors, and 2-percent S corporation shareholders. These individuals may establish a Trump Account contribution program for their common-law employees, but they cannot participate in the program themselves.

Written Plan Required

An employer that wants to make Section 128 contributions must establish and maintain a separate written Trump Account contribution program and operate the program in accordance with that document. The written plan must address, among other items:

• • eligible employee classes;
  • contribution rules, including contribution amounts and whether salary reduction contributions are permitted through a Code Section 125 cafeteria plan;
  • procedures for employees to designate their own Trump Account or a dependent’s Trump Account;
  • certification, notice, and reporting procedures;
  • the plan year; and
  • correction procedures for administrative failures.

Employers should not treat this as a purely payroll-driven benefit. The proposed rules contemplate a formal plan document, ongoing administration, and coordination with employees, trustees, payroll providers, and other service providers.

Employee Certifications and Account Verification

The proposed regulations allow employers to rely on written employee certifications for certain eligibility information. The certification generally must state that the beneficiary is the employee or is expected to be the employee’s dependent for the year, provide the beneficiary’s date of birth, and confirm that the employee is not aware of facts that would make the beneficiary ineligible.

An employer may rely on the certification unless it has actual knowledge that the certification is incorrect, but the employer cannot rely solely on the employee’s certification to confirm that the receiving account is a valid Trump Account. The employer must use a method reasonably designed to verify the account through information provided by the trustee, payroll processor, or another service provider.

Coordination With Trustees May Be a Practical Challenge

The proposed regulations would also require employers to coordinate closely with Trump Account trustees.

First, an employer generally may not restrict contributions to accounts maintained by a single employer-selected trustee. Because an individual may have only one Trump Account, an employer may need to contribute to accounts held at different financial institutions.

Second, the employer must affirmatively identify each Section 128 contribution in writing to the trustee when the contribution is transmitted. If the employer later determines that a contribution previously identified as a Section 128 contribution did not qualify, in whole or in part, the employer must provide a corrective notice to the trustee identifying the affected account, the calendar year, and the nonqualifying amount.

These rules mean employers considering the benefit will need operational procedures for contribution coding, trustee communications, and error correction.

Section 125 Cafeteria Plan Option

The proposed regulations permit Trump Account contributions to be offered through a Code Section 125 cafeteria plan, but only for pre-tax salary reduction contributions to a dependent’s Trump Account. An employee may not use pre-tax salary reductions to contribute to the employee’s own Trump Account.

Employers that offer this option will need to amend their cafeteria plan documents to describe the Trump Account contribution benefit. The proposed regulations also require employees to be permitted to prospectively change or revoke salary reduction elections at least monthly.

Tax and Reporting Treatment

Qualifying Section 128 contributions are excluded from the employee’s federal gross income and are not subject to federal income tax withholding. However, Section 128 does not provide a corresponding exclusion from FICA or FUTA, so employers should expect payroll tax administration to remain relevant.

Employers also must provide an annual written statement to employees by January 31 showing Section 128 contributions made during the prior calendar year. The 2026 General Instructions for Forms W-2 and W-3 provide that employers must report these contributions on Form W-2, using Box 12, Code TA.

Nondiscrimination Rules

Trump Account contribution programs are subject to nondiscrimination rules generally modeled on the dependent care assistance rules under Code Section 129. The program may not discriminate in favor of highly compensated employees or their dependents. The proposed regulations address eligibility, contributions and benefits, and an average-benefits test under which average benefits provided to non-highly compensated employees generally must be at least 55 percent of the average benefits provided to highly compensated employees.

The proposed rules also include special relief for employers that match the federal government’s $1,000 pilot contribution, although that relief does not eliminate the need to satisfy all nondiscrimination requirements.

Employer Takeaways

Employers interested in offering Trump Account contributions should begin evaluating:

• • whether the benefit will be employer-funded, employee-funded through a cafeteria plan, or both;
  • how the employer will verify Trump Account status and beneficiary eligibility;
  • whether payroll and benefits vendors can identify and report Section 128 contributions correctly;
  • how the employer will communicate with multiple trustees;
  • whether the benefit design can satisfy nondiscrimination rules;
  • whether any self-employed owners are excluded from participation while common-law employees remain eligible; and
  • what plan documents and/or amendments will be needed.

The proposed regulations would apply to plan years beginning on or after final regulations are published, but taxpayers may rely on the proposed regulations before final regulations are issued. A public hearing on the proposed regulations is scheduled for October 15, 2026, and additional guidance may follow after the comment and hearing process. Employers considering this benefit for 2026 should use the proposed rules as the starting point for plan design and administration, while continuing to monitor further IRS, Treasury, and DOL developments.

If you have any questions about the information in this alert, please contact your relationship attorney or any member of Dykema’s Employee Benefits and Executive Compensation Practice Group.