IRS to allow pretax cafeteria plan contributions to Trump Accounts
New IRS guidance addressing Trump Accounts contained a Section 125 cafeteria plan surprise. Trump Accounts are a new type of tax-deferred savings vehicle for individuals under 18, created under the One Big Beautiful Bill Act. These accounts allow contributions of up to $5,000 annually — indexed for inflation starting in 2028 — to help save for children’s futures. Employer contributions, including employee pretax contributions, of up to $2,500 per employee per year — also indexed starting in 2028 — are excludable from an employee’s gross income if made under a program that meets specific conditions; however, employers are not required to make or facilitate these contributions. Once the beneficiary of a Trump Account reaches age 18, the accounts typically operate like a traditional IRA. When we polled employers in August 2025, the majority were undecided about Trump Accounts.
Cafeteria plan contributions
The new guidance says employers can allow employees to make pretax contributions to the accounts of their dependent children under an IRC Section 125 cafeteria plan. However, employees under 18 can’t make pretax contributions to their own accounts because that would be a deferred compensation arrangement. If an employer offers employees to option to fund Trump Accounts under a cafeteria plan, any employee pretax contributions to their dependent children’s accounts would count towards the $2,500 annual limit on employer contributions. The notice says IRS and the Treasury Department intend to address the coordination of Trump Account contribution programs and cafeteria plans in the future proposed regulations. Those regulations may address the application of cafeteria plan nondiscrimination rules and the rules allowing midyear election changes for Trump Accounts.
Future joint guidance with DOL will explain how employers making contributions or facilitating employee pretax contributions to a Trump Account can structure it to be exempt from ERISA. But many questions still remain. IRS intends to propose more comprehensive regulations early next year that will incorporate and expand upon the guidance in the most recent notice.
You can learn more about Trump Accounts in our GRIST, “Employers can contribute to Trump accounts starting next July.”
