Trump account prop. regs. clarify $2,500 limit for workers

Proposed regulations (REG-101355-26) that the IRS estimates would affect millions of children, families, and employers clarify that the $2,500 annual limit on tax-free employer contributions to Trump accounts applies per employee — not per child or employer.

Under the proposed regulations, an employee with multiple children who have Trump accounts could divide employer contributions among those accounts, but the employee’s aggregate exclusion could not exceed the annual limit of $2,500. Likewise, if an employee with multiple jobs receives contributions from more than one employer, the employee may exclude from gross income under Sec. 128 only the $2,500 annual limit.

“If an employee has more than one employer in a year, the maximum that an employee can receive from all employers is” the statutory limit, the IRS said in the preamble. Also, “the limit applies to the employee rather than on a dependent-by-dependent basis,” the preamble said.

The proposed regulations are expected to affect 73 million children in 44 million families and about 3 million employers, the IRS said.

Background

Trump accounts are a new type of individual retirement account for eligible children under Sec. 530A, which was created by H.R. 1, P.L. 119-21, commonly referred to as OBBBA.

Under a pilot program, a $1,000 contribution from the federal government is available under Sec. 6434 for eligible children born after Dec. 31, 2024, and before Jan. 1, 2029. Individuals are generally eligible to have a Trump account established if they have been issued a Social Security number and have not turned 18 before the close of the calendar year in which the election to open a Trump account is made.

Proposed regulations

The proposed regulations would implement Sec. 128, which allows certain employer contributions to Trump accounts to be excluded from employees’ income.

The proposed regulations also answer several other questions raised by practitioners since the IRS issued Notice 2025-68 in December.

Notably, partners, sole proprietors, directors serving solely as directors, and 2% S corporation shareholders would not be treated as employees eligible for tax-favored employer contributions.

The proposed regulations adopt common-law definitions of employee and employer, meaning self-employed individuals could maintain Trump account contribution programs for their employees but could not participate in the programs themselves.

The regulations also would permit employees to fund a dependent’s Trump account through salary-reduction contributions under a Sec. 125 cafeteria plan. The IRS concluded that salary-reduction contributions to an employee’s own Trump account would constitute impermissible deferred compensation under existing cafeteria-plan rules.

Cafeteria plans offering the benefit would have to permit employees to prospectively change or revoke elections at least monthly.

The proposal also includes a nondiscrimination safe harbor for employers that choose to match the government’s $1,000 Trump account pilot-program contribution for eligible children. Treasury and the IRS said the safe harbor is intended to give employers greater certainty in implementing matching-contribution programs.

In another provision, the IRS rejected requests to allow employers to limit contributions to Trump accounts held by selected trustees. The agencies said such restrictions could prevent employees from receiving contributions for a child whose Trump account is maintained by a different trustee.

Effect of regulations

The IRS said it expects the regulations to make employers more likely to establish Trump account contribution programs, particularly programs that allow employees to make pretax contributions through salary reduction. The IRS said that, in the long run, employer-facilitated pretax contributions could become one of the most important features of Trump accounts.

Comments on the proposed regulations are due 45 days after publication in the Federal Register. A public hearing is scheduled for Oct. 15. The proposed regulations include details on how to participate.

AICPA advocacy

For FAQs and other information, visit the AICPA’s page on Trump accounts.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.