Integrating Trump Accounts into Your Employee Benefits Strategy

With the creation of Trump Accounts under the One Big Beautiful Bill (OBBB), employers have a new potential benefit to add to their packages. The Treasury Secretary predicts that 25 million families will take advantage of Trump Accounts. This means that using the $2,500 tax-free contribution can be a major bargaining chip when attracting and retaining qualified talent in today’s competitive market.

In this article, we’ll cover the details of Section 128 and 125 accounts that you need to know to integrate Trump Accounts into your benefits strategy. This article will focus on the implementation and compliance strategies employers need to know. For a breakdown of what Trump Accounts are and how they work, check out our other post here.

Employers can contribute up to $2,500 per year per employee toward Trump Accounts. This limit is per employee, not per child. Let's say that your employee has two children. The maximum contribution they can receive is $2,500. Employers can make these pre-tax contributions in two ways:

1. Direct Contributions – Employers can make a direct contribution up to $2,500 per year, which will be indexed for inflation after 2027. The employer will notify the authorized individual of the Trump Account that the contribution is excluded from the employee's gross income.
2. Pre-Tax Cafeteria Plan Contributions – Employers can offer employees the ability to reduce their pay and make up to $2,500 in pre-tax contributions through a Section 125 Cafeteria Plan. However, employees cannot contribute to their own Trump Accounts. They are only permitted to make contributions to dependent children's Trump Accounts. Both employer and employee contributions through Cafeteria Plans count toward the $2,500 limit.

We'll talk about each of these contribution methods, including the advantages and disadvantages, in the following sections.

IRC Section 128 was created upon the passage of Trump Accounts. This section of the tax code outlines certain conditions that must be met for employers to offer Trump Account contributions, including:

• Establish a TACP – A Trump Account Contribution Plan (TACP) is the plan that allows employers to make pre-tax contributions to employees' Trump Accounts. A formal, written plan must be in place. The Treasury and IRS are still working out what information needs to be included in your TACP.

• Meet TACP Requirements – Your TACP must meet requirements similar to dependent care assistance programs. Once again, the Treasury and IRS are still clarifying these requirements.

• Inform Employees – When making employer contributions to a Trump Account, the employer MUST confirm to the authorized individual that the contribution is excludable from the employee's gross income. Employer contributions made with pre-tax dollars aren't included in the account's basis upon withdrawal, meaning these contributions become taxable, unlike personal contributions that are tax-free.

Employer contributions are a deductible business expense, making it a great way to lower your business's taxable income and provide a key benefit for families taking advantage of this program.

The second option for setting up employer contributions is through a Section 125 Cafeteria Plan. This option also allows employer contributions up to $2,500, but only to the Trump Accounts of employee dependents. However, Section 125 Cafeteria Plans also give employees the opportunity to make pre-tax contributions. Here are a few key points when using Cafeteria Plans for Trump Account contributions: 

• $2,500 Limit – Both employee and employer contributions through a Cafeteria Plan count toward the annual limit. For example, if your employee makes $500 in contributions, employer contributions will be limited to $2,000.

• Plan Amendment Required – Adding Trump Accounts to your Cafeteria Plan requires a plan amendment. Be prepared to make this amendment before Trump Account contributions go live in July 2026.

• Future Basis – Since contributions are made with pre-tax dollars, they do not count towards the child's basis. Both the contribution and any growth will become taxable upon withdrawal.

• Nondiscrimination Testing – Like other benefits under a Cafeteria Plan, Trump Accounts trigger the need for nondiscrimination testing similar to dependent care benefits to ensure that the benefit doesn't favor highly compensated employees.

Like adding any other benefit, there are administrative considerations and requirements to keep in mind.

Employee Opens Account

Employers are not permitted to open Trump Accounts on employees’ behalf. Instead, your employee will need to establish the account by filing Form 4547 on their 2025 tax return or enrolling using TrumpAccounts.gov. Online enrollment through TrumpAccounts.gov is expected to open in July 2026. Employer contributions to Trump Accounts must wait until the employee not only opens their account, but also verifies their information with the Treasury.

Contribution Timing and Reporting

All employer and employee contributions must be transmitted to the trustee by December 31 of each year. This is because certain information needs to be included on the employee’s W-2. Employers also have an obligation to properly code Section 128 contributions on the W-2, including reporting the correct gross income.

Compliance with Testing Requirements

There is uncertainty surrounding whether Trump Accounts will be considered an employee welfare benefit plan that is subject to ERISA requirements. If the Department of Labor deems Trump Account contributions as eligible, employers will have additional administrative burdens, such as submitting regular annual reports, having audited financials, and establishing rigid guidelines. The IRS and Department of Labor have yet to issue information surrounding ERISA requirements, but they have hinted at future guidance on how to structure Trump Account employer contributions so that they are not subject to this framework.

Setting Employer Match Guidelines

One of the decisions you will need to make as an employer is how to structure contributions. Will you match employee contributions up to $1,250? How about contributing a set percentage of employee wages up to the cap? Streamlining benefits administration might involve keeping consistent employer match guidelines, such as those that mirror your 401(k) structures.

Here are a few additional considerations for employers.

Trump Accounts Differ from Section 529 Plans

Even though Trump Accounts and Section 529 Plans are both targeting dependent benefits, they have some stark differences, including:

• Employer contributions to 529 Plans are not excludable from employee gross income, while contributions to Trump Accounts are.

• Section 529 Plan can lead to state credits and deductions, while there are no current state tax breaks for Trump Account plan contributions.

• Trump Account earnings grow tax-deferred but are taxable upon withdrawal, while Section 529 Plans can have both tax-deferred growth and tax-free withdrawals when used for qualifying education expenses.

• Section 529 Plans have a wider range of investment options compared to Trump Accounts.

As an employer, it will be up to you to determine which type of dependent savings plan works best for your employees.

Considering Plan Inequality

Since Trump Account employer contributions are made for employees' dependents under the age of 18, employees without dependents may perceive inequality. This is one of the primary reasons that employers should consider Trump Account contributions through a Cafeteria Plan. Instead of making direct contributions, employers can fund employees' Cafeteria Plans with a flat dollar amount contribution. This gives employees without dependents access to the same benefits as employees using Trump Accounts.

Excludable Contributions from Annual Limit

The annual contribution limit to Trump Accounts is $5,000 for individuals, of which $2,500 can come from an employer. However, the following contributions do not count towards this annual limit:

• Qualified rollover contributions from another Trump Account
• $1,000 Pilot Program contributions
• Contributions by the federal or state government and nonprofit entities

Let's say that your employee receives the $1,000 Pilot Program contribution. During the year, you can still contribute up to $2,500 as an employer, and your employee can contribute another $2,500. This does make plan administration easier as employers are not obligated to keep track of outside contributions.

It's also important to note that excess contributions will need to be removed from the Trump Account to avoid penalties. This makes it important to have the right policies and procedures in place to avoid overcontributing, especially when using a Cafeteria Plan.

Additional Resources

Trump Accounts are a new type of benefit available to employees. As a result, additional guidance is expected to be released over the next few months. Here are some great resources that can provide you with up-to-date information:

• TrumpAccounts.gov – The main website for Trump Accounts. Any information related to administration and legislation will likely be found here.

• IRS Trump Accounts Homepage – This is the page that the IRS updates with new information releases. Reporting and compliance with IRS regulations, like W-2 adjustments, will likely be found here.

• Department of Labor Website – Checking the Department of Labor's news releases related to employee benefits security administration is a great way to stay informed on ERISA changes. Guidance will likely be issued in the next few months on how to structure this benefit to avoid ERISA requirements.

Adding Trump Accounts to your benefits list can be a great way to attract and retain talent in your company. However, there will be an upfront administrative burden to create a TACP or amend your Cafeteria Plan to include Trump Account contributions. Similarly, your company will have another benefit to maintain, which can increase the burden on your administrative team. Legislation surrounding Trump Accounts is expected to roll out before contributions open up in July 2026, making it essential to stay informed on the latest changes.