Trump accounts give employers a tax-advantaged way to support working parents by helping fund savings for children under age 18. Created under the 2025 One Big Beautiful Bill Act, employer contributions became an option starting July 4, 2026. However, employers must first establish a compliant Section 128 contribution program before offering the benefit.
What you’ll learn
What you’ll learn
Key takeaways
- A Trump account is a tax-deferred IRA established under IRC Section 530A for a minor child under age 18.
- Businesses can contribute up to $2,500 per employee per year tax-free under a written Section 128 contribution program.
- Pre-tax salary reductions under a Section 125 plan are allowed only when contributing to a dependent’s account, not an employee’s own account.
- During the growth period, funds can only be invested in low-fee US index funds with annual expense ratios of 0.10% or less.
Here’s a breakdown of how Trump accounts work, how Section 128 employer programs operate, and what employers need to know to set them up in payroll.
What is a Trump account?
A Trump account — established under Internal Revenue Code (IRC) Section 530A — is a specialized type of traditional IRA created for an eligible child who has a Social Security number and has not reached age 18 before the end of the calendar year.
When opened, the account is owned by the child (the account beneficiary) and managed by a designated responsible party — usually a parent or legal guardian. Only one funded Trump account can exist for a beneficiary at a time.
Growth period (ages 0-17)
The timeframe from when the account is opened until December 31 of the calendar year in which the child turns 17 is known as the growth period. During this time, the following federal rules apply:
- No earned income required: Unlike traditional IRAs, a child does not need earned income to receive contributions.
- The $1,000 government pilot program: For eligible US citizens born between January 1, 2025, and December 31, 2028, the US Treasury provides a one-time $1,000 pilot program contribution. This government contribution is exempt from the $5,000 limit, meaning employers and families can still contribute up to the full $5,000 maximum.
- Restricted low-fee investments: Funds can only be invested in low-cost index-tracking mutual funds or exchange-traded funds (ETFs) that track broad US equity markets (like the S&P 500). Leveraged funds are prohibited, and annual expenses cannot exceed 0.10%.
- Distribution limits: Withdrawals are strictly prohibited during the growth period, with one major exception. In the year the beneficiary turns 17, funds can be moved via a direct trustee-to-trustee rollover into an ABLE account for disabled individuals.
- Annual contribution limits: Aggregate annual contributions from non-government and non-pilot sources are capped at $5,000 per beneficiary (indexed for inflation after 2027). Note: Excess contributions are subject to a 6% annual penalty until the overcontributed amount is removed. Personal contributions are generally treated as gifts for federal gift tax purposes and may require the filing of a gift tax return if they exceed the annual gift tax exclusion amount.
Long-term financial impact
According to Aon, because these accounts have a nearly two-decade growth period before the beneficiary even enters the workforce, the potential for compounding interest is significant.
For context, here’s a look at Aon’s projections on how early contributions can grow over a lifetime (pre-tax, assuming average market returns):
| Beneficiary age | Single $1,000 contribution at birth | Annual $5,000 contribution (ages 0-17) |
| Age 18 | $2,000 | $120,000 |
| Age 25 | $3,000 | $165,000 |
| Age 67 | $18,000 | $980,000 |
Transition at age 18
Beginning January 1 of the calendar year the beneficiary turns 18, the special growth-period rules expire; thereafter, the account generally operates under the rules applicable to traditional IRAs. This holds true for contributions, investments, and distributions — including the 10% early withdrawal penalty under Section 72(t) (unless an exception applies, such as qualified higher education expenses or a first-time home purchase).
While 529 plans offer completely tax-exempt withdrawals for education, Trump accounts offer much more flexibility for non-education expenses in adulthood, though their earnings are taxed as ordinary income upon withdrawal.
Now that we better understand how these accounts work and the savings potential for beneficiaries, let’s examine how employers can contribute to them.
How Section 128 employer contribution programs work
Under IRC Section 128, employers can establish a formal Trump account contribution program to fund accounts for employees’ eligible dependents tax-free.
Employer contribution caps and tax treatment
- $2,500 annual limit: Employers can contribute up to $2,500 per employee each year. This cap applies per employee, not per child. If an employee has three children with Trump accounts, the employer’s total tax-free contribution across all three accounts combined cannot exceed $2,500 per year.
- Income exclusion: Contributions made under Section 128 are excluded from the employee’s gross income and are not subject to federal income tax, Social Security, or Medicare withholding.
- Employer deduction: Employer contributions are fully tax-deductible as an ordinary business expense.
- Matching the pilot program: According to Aon, over 50 large employers have already announced plans to offer Trump accounts, with most pledging to match the government’s $1,000 pilot contribution.
Written plan requirements
To qualify for the tax exclusion under Section 128(c), contributions must be made through a separate written plan document. Similar to a Section 129 dependent care assistance program, the written plan must do the following:
- Define eligible employees (for example, workers with dependents under age 18).
- The 55% nondiscrimination test: To qualify for the tax exclusion under Section 128(c), your written plan must pass nondiscrimination testing to ensure it does not heavily favor highly compensated employees. Specifically, the average benefits provided to non-highly compensated employees must equal at least 55% of the average benefits provided to your highly compensated team members.
- Provide formal notification to all eligible employees describing the benefit details.
- Provide an annual written statement to each participating worker by January 31 showing total contributions made during the prior year.
Now that we’ve seen how employers fit into the picture, let’s look at how employees can help grow these accounts.
Pre-tax salary reductions and cafeteria plan rules
In addition to direct employer contributions, individuals are able to contribute to their dependents’ Trump accounts through payroll deductions. However, the IRS maintains a distinction regarding pre-tax vs. post-tax deductions:
- Dependents’ accounts: Contributions to a dependent’s Trump account can be set up as a pre-tax salary reduction through an IRC Section 125 cafeteria plan. Combined employer contributions and employee salary reductions cannot exceed the $2,500 annual limit per employee.
- Employee’s own account: If an employee is under 18 (such as a 16- or 17-year-old worker) and opens an account for themselves, pre-tax salary reductions under a Section 125 plan are not permitted. Any payroll contributions made by the worker to their own account must be processed post-tax, which creates basis in the account.
Recent IRS guidance and opening an account
While you can make direct Section 128 employer contributions right now, the IRS is still finalizing the exact Section 125 regulations needed to fully integrate these accounts into cafeteria plans.
That said, on March 6, 2026, the Treasury and the IRS issued proposed regulations detailing how these accounts are established. To open an initial Trump account, parents or guardians must submit IRS Form 4547, either via paper or through an online portal.
Form 4547 rules and deadlines
- The deadline: The election to open an account must be made on or before December 31 of the calendar year the child turns 17.
- The pilot program: Form 4547 is also the official document used to request the $1,000 government pilot program contribution.
- Authorized individuals: If the pilot contribution is not being claimed, the authorized person opening the account must be a legal guardian, parent, adult sibling, or grandparent, in that specific order of priority.
We are closely monitoring this legislation and will update the cafeteria plan payroll guidelines as soon as the IRS releases its official model plan documents.
ERISA compliance and safe harbor rules
Because Section 128 allows employers to contribute money toward retirement-style accounts, business owners often worry about triggering Employee Retirement Income Security Act (ERISA) obligations.
Department of Labor (DOL) Technical Release 2026-02 resolved this question: Trump accounts and Section 128 contribution programs generally are not ERISA pension plans.
Why does ERISA not apply to dependent accounts?
ERISA Title I covers plans that provide retirement income directly to employees. Because Section 128 programs direct funds to an employee’s dependent rather than the worker, the DOL determined that these programs do not meet the definition of an employee pension benefit plan.
Safe harbor for minor employees
When an employer contributes to the Trump account of a minor worker (age 16 or 17), the program remains exempt from ERISA as long as the employer satisfies the following safe harbor conditions:
- Participation is entirely voluntary for the worker.
- The employer does not influence investment selections.
- The employer does not place extra restrictions on fund usage beyond IRS code rules.
- The employer does not advertise the program as an ERISA benefit plan.
- The employer receives no compensation or payment from the account sponsor.
Keeping communication neutral
Employers can share information about Trump accounts on workplace intranets or link to the official government Trump account portal without violating ERISA safe harbor rules, as long as they maintain neutrality and do not endorse specific financial products.
Now that ERISA compliance is clear, here’s how to add Section 128 contributions to your benefits program and payroll.
Setting up Trump account contributions in payroll
When adding a Section 128 program to your benefits package, proper payroll configuration prevents tax reporting errors at year-end. Here’s how employers can put one in place.
Step 1: Adopt a written plan
Draft a formal Section 128 Trump account contribution program document before processing payroll deductions or any employer contributions.
Step 2: Establish the deduction in payroll
Coordinate with your payroll provider to create the correct payroll codes.
- Set up pre-tax employee salary reductions under Section 125 for dependent accounts.
- Set up employer contributions under Section 128.
- Ensure total combined contributions (employer plus pre-tax salary reduction) cap at $2,500 per employee each year.
Step 3: Verify trustee details
Because contributions must be distributed directly to the child’s trustee, collect the beneficiary’s official Trump account routing and account numbers. Remember that contributions are permissible beginning on July 4, 2026.
Step 4: Year-end W-2 reporting
In an August 13 payroll industry teleconference, the IRS provided fresh guidance on year-end reporting. You should report Section 128 contributions on Form W-2 in Box 12 using code TA.
Because both direct employer contributions and employee pre-tax salary reductions (under a Section 125 cafeteria plan) are exempt from income tax, the IRS confirmed that you can use code TA for both types of contributions. If you are familiar with how Health Savings Accounts (HSAs) are reported, this works the same way.
You’ll want to verify that these excluded contributions are omitted from taxable wages in Box 1, Box 3 (Social Security), and Box 5 (Medicare).
Moving forward with Trump accounts
Offering a Section 128 Trump account program helps small businesses add a tax-favored family benefit to their benefits package without a lot of administrative overhead. Because these programs do not trigger ERISA fiduciary burdens when structured properly, they offer a straightforward way to support working parents on your team.
If you have questions about setting up pre-tax deductions or managing benefit plans, consult a CPA or reach out to our team of benefits experts to make sure your payroll setup stays compliant.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.