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Trump accounts: Top 5 considerations for individuals and employers

ARTICLE | December 17, 2025 | By RSM US LLP

Trump accounts are a type of tax-advantaged savings account for children under age 18, established by the One Big Beautiful Bill Act (OBBBA) in July 2025. The IRS in Notice 2025-68 clarified some of the rules surrounding how these accounts will work, including for contributions, investments and reporting.

As families and employers prepare for the July 4, 2026, launch, they can plan more effectively by taking time to understand the unique planning opportunities and compliance requirements that Trump accounts present.

What is a Trump account?

A Trump account is a new type of traditional Individual Retirement Account (IRA) established for the exclusive benefit of a child who has not turned 18 by the end of the year the account is opened and who has a Social Security number.

The accounts are subject to a special set of rules during a "growth period," which ends on Dec. 31 of the year the beneficiary turns 17. After the growth period, the account is generally treated as a traditional IRA.

Initial IRS guidance indicates that an authorized individual, such as a parent or guardian, can elect to establish an account starting in 2026 using a new IRS form or an online portal expected to be available in mid-2026. No contributions can be made before July 4, 2026.

Top 5 considerations for Trump accounts: Individuals

Contribution sources and limits

Trump accounts can be funded from multiple sources. Parents, relatives, and others can contribute up to a combined $5,000 annually per account (this limit will be adjusted for inflation after 2027). This limit is separate from other IRA contribution limits. However, certain “exempt” contributions do not count toward this $5,000 cap, including:

• The one-time $1,000 government contribution for eligible U.S. citizen children born between Jan. 1, 2025, and Dec. 31, 2028.
• Qualified rollover contributions, such as a direct trustee-to-trustee transfer of the entire balance from a prior Trump account for the same beneficiary.
• Qualified general contributions, which include contributions made by certain charitable organizations or government entities to a defined class of account beneficiaries.
  • Example: A private philanthropic donor announced a pledge intended to qualify as a general contribution, which is expected to add $250 to eligible Trump accounts. If structured properly, this type of contribution is exempt from the annual $5,000 limit, and a parent or employer could still contribute up to the full $5,000 in the same year.

Tax treatment of contributions and distributions

The tax treatment depends on the source of the funds.

Contributions from parents and other individuals: These are generally made with after-tax money (nondeductible) and create "basis" in the account. These amounts can be withdrawn tax-free later. Note that there is potential for pre-tax deferrals; see the employer section below for more details.

$1,000 pilot program seed contributions: These are not subject to tax when contributed or when distributed in a permissible distribution.

Contributions from employers and charities: These are not included in the child's gross income when made and do not create basis; therefore, they are taxable when withdrawn. After the growth period, distributions of earnings and nonbasis contributions are taxed as ordinary income to the beneficiary, similar to a traditional IRA, while distributions of basis contributions are tax-free.

Upon turning 18, the normal IRA rules apply, and a 10% additional tax will apply to distributions before age 59.5, unless the distribution is for a first-time home purchase, higher education costs, significant medical expenses, or other enumerated exceptions to the 10% tax.

Special rules during the “growth period”

Until the beneficiary turns 18, the accounts are subject to strict limitations, including:

• Funds may only be invested in "eligible investments," which are low-fee (under 0.1% annually) mutual funds or exchange-traded funds that track a broad-based U.S. stock index (like the S&P 500) and do not use leverage.
• Withdrawals are generally prohibited during the growth period. Exceptions include rollovers, distributions to correct excess contributions, and distributions upon the beneficiary's death.

Gift and estate planning

Contributions from individuals to Trump accounts do not qualify for the gift tax annual exclusion.

This means whenever an individual contributes to a Trump account, whether it’s the $25 minimum or the $5,000 maximum, the donor must file a gift tax return to report the use of their lifetime exemption.

Alleviating this filing requirement would require legislation, perhaps to introduce rules similar to the gift tax exceptions for 529 accounts. Through the first half of December 2025, there had been no such legislative proposals.

Don’t forget about other savings options

Trump accounts have specific investment restrictions, which may limit growth compared to other savings vehicles, such as custodial brokerage accounts or 529 plans.

Individuals can still take advantage of the government’s $1,000 contribution, and up to $5,000 from employers, and then choose to invest additional funds elsewhere if they wish to pursue other benefits.

It’s important to consider all options against an individual’s particular savings strategy to find what works best for your family’s goals. Contributions on behalf of a child to a custodial brokerage account or 529 plan generally qualify for the gift tax annual exclusion.

Top 5 considerations for Trump accounts: Employers

A new tax-free employee benefit

Employers can establish a Trump account contribution program to contribute to the accounts of their employees or their dependents.

Employers can contribute up to $2,500 per year for each employee (adjusted for inflation after 2027). This is an aggregate limit per employee, not per dependent.

The contribution is excluded from the employee's gross income, providing a tax-free benefit.

While not explicitly stated, employer contributions to qualified employee benefit plans are typically deductible as an ordinary and necessary business expense.

Integration with existing benefits

IRS guidance allows a Trump account contribution program to be offered through a section 125 cafeteria plan. This allows employees to make pre-tax contributions to their dependents' accounts (but not their own) via salary reduction. It also allows employers to make contributions pre-tax to their employees.

Because Trump accounts are exclusively for employees with children under 18, employees without young children would receive no value from this program and may perceive inequity. However, there may be ways that employers can address this issue, including, for example, providing a flat dollar contribution under the cafeteria plan document that each employee may direct to a Trump account or to another benefit.

Plan design and compliance

To offer a Trump account contribution program, an employer must adopt a separate written plan for the exclusive benefit of his employees. This plan must meet requirements similar to those for a dependent care assistance program, which include rules related to nondiscrimination, eligibility, and notifying employees of the plan's availability and terms.

Administration and reporting

Employers will have new administrative responsibilities. When making a contribution, an employer must affirmatively inform the account trustee that it is a section 128 employer contribution. Employer programs must satisfy nondiscrimination testing rules similar to those for a dependent care assistance program.

Notice 2025-68 is preliminary guidance. The final regulations, anticipated to be published in 2026, could differ. Early adoption of a program carries the risk that future rules may require plan design changes.

ERISA uncertainty

There is uncertainty whether a Trump account contribution program will be considered an "employee welfare benefit plan" under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA compliance would impose a heightened administrative burden on employers, specifically in oversight and reporting.

The IRS and Department of Labor acknowledged this concern in Notice 2025-68 and indicated they anticipate issuing guidance on how to structure section 128 employer contributions to Trump accounts to ensure they are not subject to the ERISA coverage framework.

Please connect with your advisor if you have any questions about this article.