Publication
The (Final) Regs Are Yet to Come: What Employers Should Know About Contributions to Trump Accounts
The Treasury Department recently issued proposed regulations providing long-awaited guidance on employer contributions to Trump Accounts under Internal Revenue Code Section 128.
As we have described previously, Trump Accounts are tax-advantaged retirement accounts for eligible individuals under age 18. Employers may contribute up to $2,500 per employee per year on a pretax basis under a qualifying Trump Account Contribution Program (TACP), and those contributions are excludable from the employee’s gross income. The $2,500 employer contribution counts toward the child’s overall $5,000 annual contribution limit.
The proposed regulations resolve many open issues with respect to employer contributions to TACPs.
- Written Plan Requirement. Employers must maintain a separate written plan that specifies: (i) the classes of eligible employees, (ii) the rules governing employer contributions (including contribution amounts and whether contributions may be made through a Section 125 cafeteria plan), (iii) the procedures employees must follow to designate a Trump Account to receive contributions, (iv) certification, notice, and reporting procedures, (v) the plan year, and (vi) procedures for correcting administrative failures.
- Notice and Reporting. Employers must provide advance notice of the TACP’s availability and terms to eligible employees. In addition, employers must furnish an annual statement of contributions to each participating employee, a requirement that can be satisfied through Form W-2 reporting by populating Box 12 with Code “TA”.
- Employee Certifications. Employers may rely on written employee certifications that a contribution recipient is an eligible Trump Account beneficiary. However, employers may not rely solely on the employee’s certification that the destination account is a valid Trump Account and may be required to seek separate verification from the trustee or payroll processor.
- No Trustee Restrictions. Employers may not restrict contributions to Trump Accounts held by a specific trustee. This means employers must be prepared to remit contributions to whichever trustee holds the employee’s or dependent’s account. The exact mechanism for remitting and tracking contributions to multiple trustees remains an area that will require careful operational planning.
- Cafeteria Plan Integration. Employees may make pretax salary reduction contributions through a Section 125 cafeteria plan, but only to a dependent’s (not an employee’s) Trump Account. Cafeteria plans offering this benefit must allow employees to prospectively change or revoke elections at least monthly. The separate written plan requirement for the TACP remains in effect even when contributions are routed through a cafeteria plan.
- Contribution Limits. The $2,500 annual exclusion applies per employee, not per dependent. An employee with multiple eligible dependents may allocate contributions among their Trump Accounts, but the aggregate exclusion remains capped at $2,500. The limit also applies across all employers — if an employee receives contributions from more than one employer, the combined exclusion cannot exceed $2,500.
- Nondiscrimination Rules. The proposed regulations set out the nondiscrimination testing framework applicable to TACPs, which mostly mirrors the rules applicable to dependent care assistance programs. In general, TACPs must satisfy (i) a contributions and benefits test, (ii) an eligibility test, and (iii) an average benefits test. A safe harbor is available for employers that match the government’s $1,000 pilot program contribution.
- Participation Limits. Self-employed individuals (e.g., partners, sole proprietors, and more-than-2% S corporation shareholders) are not eligible to participate in a TACP.
Given that these regulations remain in proposed form, employers should carefully consider their approach. While the proposed rules may be relied upon immediately, changes between the proposed and final versions are possible. Employers interested in offering Trump Account contributions as a benefit might begin evaluating plan design, payroll system readiness, and coordination with existing cafeteria plans, but may wish to wait until the regulations are finalized before formally adopting a TACP.
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