Employers can contribute to Trump Accounts starting next July 

These accounts can only be established for the exclusive benefit of individuals who already have a social security number and will not attain the age of 18 before the end of the calendar year.

Accounts can begin receiving contributions on July 4, 2026 (i.e., 12 months after the law’s enactment), and can continue receiving contributions through the end of the year the beneficiary turns 17. Individuals’ contributions are made on an after-tax basis and are subject to a $5,000 per year contribution limit (indexed for inflation for tax years starting after Dec. 31, 2027). Employer contributions count toward the annual contribution limit. The following other types of contributions don’t accrue toward the limit:

• Qualified rollover contributions from another Trump Account
• A $1,000 federal government contribution under a pilot program for US-citizen children born from 2025 through 2028
• Contributions by the federal government or certain governmental or nonprofit entities to a qualified class of beneficiaries

Until the first day of the calendar year the beneficiary turns 18, the account must be invested in a mutual fund or exchange-traded fund that:

• Tracks the returns of the S&P 500 index or another index consisting of equity investments in primarily US companies for which regulated futures contracts are traded
• Doesn’t use leverage
• Charges annual fees and expenses of 10 basis points or less
• Meets other criteria the Treasury Secretary deems appropriate

The law generally prohibits distributions before the calendar year the beneficiary turns 18. Distributions of amounts other than after-tax contributions are taxable as ordinary income and subject to the 10% early withdrawal penalty, unless the account beneficiary qualifies for an exception under the ordinary rules for IRA distributions. Exceptions from the penalty include distributions for qualified higher education expenses and qualified first-time homebuyers, up to $10,000 (but not small business expenses as permitted in an earlier version of the bill passed by the House).

The program must benefit employees who qualify under a classification Treasury finds not discriminatory in favor of highly compensated employees (HCEs), as defined in IRC Section 414(q), or their dependents. When applying these rules for DCAPs, sponsors may exclude from consideration employees who haven’t attained age 21 and completed one year of service, as well as certain collectively bargained employees. However, new IRC Section 128 doesn’t expressly incorporate that exclusion for testing Trump account contribution programs. Agency guidance is needed to confirm whether the same exclusions can be applied to these programs.

The statute also incorporates DCAP provisions requiring employers to provide eligible employees with reasonable notification of the availability and terms of the program and furnish each employee, on or before Jan. 31, a written statement showing the amounts paid or expenses incurred by the employer in providing benefits to the employee during the previous calendar year.

These programs are also subject to the average benefits test applicable to DCAPs. This test requires the average benefits provided to nonhighly compensated employees to be at least 55% of the average benefits provided to HCEs.

The statute doesn’t specify whether the $2,500 limit applies on an annual or lifetime basis. The fact that the $2,500 limit is indexed doesn’t appear to be determinative.

The statute provides that the $2,500 limit applies “with respect to any employee.” This could be read to suggest that employees with more than one eligible child are subject to the same limit as employees with only one dependent child (which is consistent with how the limit on excludable contributions to DCAPs is applied). However, this could create challenges for employees with multiple children.

Example. An employer contributes $1,000 to the Trump Accounts of employees’ dependent children. One employee has three dependent children who will not attain age 18 by year-end. The total employer contribution with respect to that employee would be $3,000. If the limit applies separately to each child, the full employer contribution would be excludable from the employee’s income. However, if the limit applies to the employee rather than per child, the employer contribution would exceed the limit by $500, and the excess would be included in the employee’s gross income.

A safe-harbor regulation DOL issued soon after ERISA’s enactment clarified that payroll deduction IRA programs meeting certain conditions aren’t ERISA retirement plans, as long as the employer doesn’t make any contributions. Since Trump Account contributions programs involve employer contributions, employers offering these programs apparently won’t be able to rely on the safe harbor (though the safe harbor’s unavailability wouldn’t necessarily mean these programs are ERISA plans).

DOL’s previous guidance hasn’t addressed ERISA’s application to programs involving contributions to IRAs of employees’ dependents. Whether a program that only makes contributions to Trump Accounts of employees’ dependent children — and not accounts of any employees under 18 — could avoid being subject to ERISA is unclear (i.e., such a program may not be viewed as providing retirement income to employees for purposes of ERISA’s definition of retirement plan). Employers with concerns about ERISA’s applicability might prefer to wait for DOL guidance on these programs.