Trump Accounts as an Employee Benefit

Question: What are Trump Accounts, and how can they be offered as an employee benefit?

Short Answer: The OBBB introduces a new way to save for children on a tax-advantaged basis through “Trump Accounts” that become available on July 4, 2026. The federal government will contribute $1,000 for newborns, and parents can contribute up to $5,000 annually. A key feature of the new offering is employers can contribute up to $2,500 tax-free to Trump Accounts established for employees’ children.

Starting Point: OBBB Expands Employee Benefit Offerings

The “One Big Beautiful Bill Act” (OBBB), is a sweeping and comprehensive piece of legislation incorporating many aspects of tax, health, defense, and energy policy.  Included in the OBBB are multiple significant changes to employee benefits law.  Under the OBBB, employers have new benefit options available going forward with respect to HSAs, dependent care FSAs, student loan repayment assistance, and “Trump Accounts”. 

• For more details: How the One Big Beautiful Bill Affects Employee Benefits 

With respect to Trump Accounts, there was a push by various groups prior to the OBBB to create the concept of “Invest America” accounts.  The intent is to provide a financial stake in the capital markets for all children starting at birth so they will learn about investing, benefit from compound growth, and share a common interest in the broad success of American industries.  These “Invest America” accounts have been codified in the OBBB under the new naming convention as “Trump Accounts” (referred to within alternately as “TAs”) 

Trump Accounts: The Basics 

TAs are a new way to save for children prior to reaching age 18.  Each child has a $5,000 per year contribution limit (indexed) for amounts deposited by parents and employers.  States and charitable groups also have the option to fund TAs.  Contributions to TAs may begin as of one year from the date of OBBB enactment, which happens to be America’s 250^th sesquicentennial birthday July 4, 2026.  TAs function similarly to Individual Retirement Accounts (IRAs), whereby investments grow tax-deferred.  No distributions are permitted prior to the child reaching age 18.  Upon reaching age 18, the beneficiary may withdraw amounts from the fund for any purpose.  The amount of the distribution attributable to principal (i.e., contributions) is tax-free.  The gains are taxed as ordinary income upon distribution.  The selling points for those who have been advocating for TAs (primarily the Invest America organization led by Brad Gerstner, founder of Altimeter Capital) include: 

• Expanding financial literacy; 

• Restoring faith in free markets; 

• Closing the wealth gap; and 

• Expanding participation in the American stock market. 

One of the key drivers of movement has been to maximize the benefit of compound growth by starting access to TAs upon birth.  Albert Einstein is often credited with declaring that compound growth is “the most powerful force in the universe.”  Invest America shows that if a newborn receives a $1,000 contribution at birth and $750 annually thereafter, the TA could be worth over $1 million upon the child reaching age 65 (assuming a 7% growth rate).  More broadly, there is a concern among many politicians that too many Americans do not benefit from the growth of the stock market and therefore are not sufficiently interested in the success of American businesses.  Senator Ted Cruz (R-TX), who introduced the initial legislation for TAs that made it (in a modified manner) into the OBBB, argues the account will “help produce new capitalists” because it will “give everyone a stake.”  

The New Employee Benefit Option: Tax-Free Contributions to Trump Accounts 

The tax incentives associated with TAs will make it an attractive offering for employers to consider.    

$2,500 Tax-Free Annual Employer Contributions 

Starting July 4, 2026, employers can contribute up to $2,500 tax-free (indexed) each calendar year to the TAs of employees’ dependents.  It is likely that employers will start small in this area (e.g., $500 contributions) to test the waters.  Over time, as employees start to better understand TAs, these employer contribution levels may become a key recruiting and retention metric that pushes the industry upward toward the $2,500 tax-free limit.  

Multiple CEOs have expressed support for the employee offering once available (Dell, Altimeter Capital, Arm Holdings, ServiceNow, Uber, Goldman Sachs, Robinhood).  CEO Michael Dell has already pledged to match the government seed money dollar-for-dollar for his Dell employees’ children.  

Note that there is no option for employees to contribute through payroll on a pre-tax basis to TAs because they are not a Section 125 qualified benefit.  Nor is there the option to embed tax-free TA contributions in a broader arrangement such as flex credits through a cafeteria plan or a lifestyle spending account (LSA).  The constructive receipt rules prevent any tax-advantaged approach other than standard employer contributions.  

For more details: 

• The Section 125 Safe Harbor from Constructive Receipt 

• Lifestyle Spending Account (LSA) Compliance Considerations 

• Newfront Section 125 Cafeteria Plan Guide 

• Newfront Fringe Benefits for Employers Guide 

Counts Toward $5,000 Annual Contribution Limit 

Employer contributions to the TA count toward the $5,000 annual (indexed) limit.  This will be an important initial communication point because these limitations will not be well known at the outset.  Furthermore, many employees may be unaware of the employer limit aggregation because the $1,000 federal government contribution to TAs for newborns does not count toward the $5,000 annual limit.  

Written Plan Document 

Employer tax-free contributions to TAs must be made pursuant to a separate written plan for the exclusive purpose of providing the benefit to employees’ dependents.  It is possible the IRS will at some point provide a sample plan for this purpose, such as the sample they recently provided for Educational Assistance Programs.  

TA contributions are not an ERISA benefit, so TAs are not a benefit that will be incorporated in the wrap plan document or wrap SPD, and they will not be reported on the Form 5500.  While no SPD is required because TAs are a non-ERISA benefit, employers must provide reasonable notification of the availability and terms of the program to employees.  Employers will likely satisfy this by providing the written plan document, which will likely be a relatively short and simple documents given the straightforward nature of the benefit.  Employers may also consider supplementing the formal written plan documents with concise benefit summary materials that function like an SPD.  

Nondiscrimination 

The TA rules apply nondiscrimination requirements for employer tax-free contributions that are similar to the §129 dependent care FSA rules.  This means employers cannot discriminate in favor of highly compensated employees (HCEs), which in 2026 is generally those who earned in excess of $160,000 in the prior plan year (plus officers and more-than-5% owners).  

These rules will require that the eligibility structure to receive employer tax-free TA contributions not be discriminatory in favor of HCEs.  They also incorporate the notorious 55% average benefits test, which requires that at least 55% of the TA benefits be for non-HCEs.  This is a particularly challenging test for the dependent care FSA because it is funded by employee contributions, and HCEs tend to contribute disproportionately.  However, with respect to TA contributions, the nature of the across-the-board employer contribution structure (based on a nondiscriminatory eligibility class) should make meeting this standard much easier.  

Newborns Receive $1,000 Federal Government Contribution 

The OBBB includes a $1,000 gift contribution to all babies born 2025-2028 to kickstart these fledgling TAs.  These $1,000 deposits courtesy of Uncle Sam are referred to as a “pilot program,” presumably to test whether the approach is appropriate in the long term.  If the initial rollout goes well, it is possible that the federal government contribution approach could be made permanent, increased, indexed for inflation, etc.  

One additional feature of the federal government contribution is that it does not count toward the $5,000 (indexed) annual contribution limit.  In short, newborns can receive the $1,000 federal contribution plus an additional $5,000 from parents and/or employers to reach a total of $6,000 in their birth year.  

Outside Entities Can Also Contribute to Trump Accounts 

Any of the 50 states, D.C., Indian tribal governments, and any tax-exempt §501(c)(3) charitable organization may contribute to TAs on behalf of children in a “qualified class”.    Qualified classes include: 

• All TA beneficiaries under age 18; 

• All TA beneficiaries under age 18 who reside in a specific state, one or more specific states, or a specific geographic area that includes at least 5,000 beneficiaries; or 

• All TA beneficiaries born in one or more calendar years (and are under age 18). 

 All such outside contributions will be allocated equally among the qualified class. These contributions are referred to in the rules as “general funding contributions,” which (along with employer contributions) have potential to be an even more significant source of TA deposits than the one-time $1,000 newborn contribution.  

Trump Account Investment Options: U.S. Stocks Funds 

One of the core purposes of TAs is for a broader base of the population to have a financial interest in the success of American business.  Accordingly, only U.S. stock-based funds are treated as an “eligible investment”.  Eligible investments include mutual funds and ETFs that track the S&P 500 index or any other index primarily invested in U.S. companies that is not industry or sector-specific (e.g., the total U.S. market index).  The fund also cannot use leverage or have an expense ratio that exceeds ten basis points (0.1%).  

Trump Account Distributions: Gains Taxed as Ordinary Income 

Contributions to TAs and nondeductible and create a basis that determines the taxation of distributions.  While in the account, TA funds grow tax-deferred.  TA beneficiaries have full access to the funds beginning at age 18 to distribute for any reason.   Beceficiaries receive distributions of the basis amount (i.e., the principal attributable to contributions) tax-free.  Any gains distributed are taxed as ordinary income.  This is similar to the tax structure of a nondeductible traditional (non-Roth) IRA.  

Criticism of Trump Accounts 

Tax Structure 

There will be debate in the years to come as to the relative advantages of TAs versus other arrangements for children, such as 529 college savings plans and custodial accounts.  For example, 529 plans have essentially no contribution limit and receive tax-free distributions for qualified education expenses, and custodial accounts (such as UGMA/UTMA) receive capital gains tax treatment on earnings distributions.  Weighing the merits of TAs and these other types of child investment arrangements will likely become a key aspect of parental financial planning moving forward.  

The Name 

There is no reason to ignore the elephant in the room: The name “Trump Account” is polarizing.  A more generic term like the original “Invest America” account would have been more broadly palatable to both sides of the aisle.  Naming anything after a contemporary political figure is always going to be controversial (remember “Obamacare” as a reference to the ACA?  Or even “Hillarycare” before that?), and perhaps that sensitivity is to an even greater degree with President Trump.  It will be interesting to see if an informal jargon (such as “TA”) develops to refer to the accounts that minimizes the political connection.   

Then again, the initial draft of the OBBB referred to the accounts as “MAGA accounts,” or “money accounts for growth and advancement.”  It is possible that only this “MAGA” phrasing could have been more divisive than the eventual Trump Account result. 

Inequality 

Putting aside name, there is also substantive criticism of the new account.  Some have stated TAs could exacerbate inequality because the $1,000 federal government contribution will be insignificant compared to the funding received by children of more wealthy parents.  Others criticize that the money will be handled by private firms on Wall Street instead of the government.  Another criticism is that newborns do not have access to the account until age 18, but in the meantime they may have significant financial hardships. 

Pronatalism 

On a broader societal level, others have criticized TAs as “pronatalist,” or a misguided policy to encourage a higher birthrate in the country.  This angle has been driven in large part as a backlash to Elon Musk’s advocacy for addressing the declining birthrate in the country (and globally).   

Distortion of Prior “Baby Bonds” Proposed Legislation 

The most interesting criticism of TAs is that it seems to have taken the premise from a Democratic party priority and modified it in a direction less acceptable to liberal legislators.  Senator Cory Booker (D-NJ) and Representative Ayanna Pressley (D-MA) have for years been advocating for “Baby Bonds” legislation since they first introduced the American Opportunity Accounts Act in 2019.  These proposed arrangements would have been funded exclusively by the federal government, invested in long-term Treasury bonds (as opposed to the stock market), based on family income levels, and designed to help close the racial wealth gap. 

On the House floor, Rep. Pressley condemned Trump Accounts as “stealing a good idea and twisting it” through an approach “intentionally designed to help the rich get richer, while poor children are left further and further behind.”  She then took the criticism to the next level stating that TAs are “a policy choice—and a violent one.”  

Potential for Bipartisan Support Moving Forward 

As with any tax-advantaged account, there will almost certainly be the need to modify the rules through additional legislation in the future that addresses valuable learned experiences once TAs go live.  Outside of the strict confines of the budget reconciliation process used to pass the OBBB, Congress will need to have a level of bipartisanship to approve any changes.  There may be hope for at least some degree of interest in coming together for that purpose, as Representative Ro Khanna (D-CA) stated Trump Accounts are “one part of the Bill that I support and Democrats must build on!” 

Summary 

Trump Accounts have a long way to go to being a household term.  The OBBB is so large and far-reaching in scope that any particular policy within is often overshadowed.  Plus, the new tax-advantaged account for children is conceptually novel and therefore will take some time to capture the zeitgeist of American parents in a manner similar to the wildly successful 529 college savings plan program first introduced (in their modern form) in 2001. 

With Trump Account contributions beginning on July 4, 2026, employers should keep a close eye on whether to consider some level of contribution for employees’ children as a new employee benefit.  The employer option to contribute up to $2,500 tax-free may prove to be an enticing potential differentiator for employees in a crowded benefits field.  Employers should keep an eye on this offering over the next year as the development of the arrangement unfolds with more details. 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).