July 22, 2025
On July 4, 2025, a major tax and spending bill was signed into law, commonly referred to as the One Big Beautiful Bill Act (the “OBBB”). See our recent Update for a general summary. This Update provides details on a new type of children’s savings account created by the OBBB called “Trump Accounts” (previously referred to as “Invest America” accounts). Employers may want to consider establishing a new tax-favored “Trump Account” benefit for employees, effective for tax years beginning in 2026. In the meantime, we are awaiting further guidance on “Trump Accounts,” including more information on the specific rules that will apply to employer contributions. We have provided a summary below of some of the basic Trump Account rules.
Overview of “Trump Accounts” and Basic Structure Outline
- Trump Accounts may be established for all eligible children (under the age of 18), effective for tax years beginning in 2026.
- Contributions may begin on July 4, 2026 (12 months after the OBBB enactment).
- Contributions may be made by parents, relatives, or other taxpayers.
- There is a $5,000 per year contribution limit (indexed) per child for amounts deposited by parents/other taxpayers and employers.
- Annual contributions can only be made until the child reaches age 18.
- An eligible child who is a U.S. citizen with a Social Security number, born between January 1, 2025, and December 31, 2028, may receive a $1,000 contribution from the federal government.
- The $1,000 federal government contribution for newborns does not count toward the $5,000 annual limit (so a newborn can receive a total $6,000 contribution in their birth year).
- Trump Accounts are treated similarly to traditional individual retirement accounts (IRAs) for tax purposes, although taxpayers’ contributions are not tax-deductible.
- Investment earnings grow tax deferred.
- Withdrawals for any reason are permitted beginning at age 18.
- Distributions are generally taxable (treated as ordinary income) to the extent they exceed taxpayer contributions.
Employer Benefit Option
- Employers may establish a Trump Account Contribution Program.
- Employers can contribute up to $2,500 per year (indexed) on a tax-free basis to the Trump Accounts of employees’ dependents (or teenage employees).
- Employer contributions count toward the $5,000 annual (indexed) limit.
- There is no option for employees to contribute through payroll on a pre-tax basis because Trump Accounts are not a Section 125 qualified benefit.
- There is no option to embed tax-free contributions into any broader tax-preferred arrangement such as flex credits through a cafeteria plan or a lifestyle spending account (LSA).
- The Program must be established pursuant to a written plan document.
- Eligible employees must receive reasonable notification of the Program’s availability and terms.
- The Program is not an ERISA benefit, so it is not a required part of an ERISA wrap plan document/SPD, and the Program will not be reportable on a Form 5500.
- The Program must meet certain tax rules similar to those that apply to dependent care flexible spending accounts.
- The Program’s eligibility rules, contributions, or benefits cannot discriminate in favor of highly compensated employees or their dependents.
- On or before January 31 each year, employees must be provided with a written statement showing the amounts paid or expenses incurred by the employer in providing the program during the previous calendar year.
Next Steps
The OBBB did not address all of the details of how the federal agencies will implement Trump Accounts, including how Accounts can be opened, how the taxing agencies will interact with private IRA/account providers, and the forms and process for parents to prove eligibility for the $1,000 seed contribution from the federal government. We are expecting more guidance addressing eligibility criteria, implementation timelines and administration details. Employers interested in a Trump Account Contribution Program should watch for this guidance in the near future. We will provide alerts and updates as new information becomes available. As always, Conner Strong & Buckelew is prepared to assist our clients with any benefit changes or additions they might wish to consider later this year and into the future. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
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