An Overview of Trump Account Contribution Programs

Employees can defer their own salary pre-tax into a child’s account

Proposed regulations under §128 (REG-101355-26) explain the fundamental operations of an employer §128(c) Trump account contribution program. They apply to plan years beginning on or after the date final regulations are published, but taxpayers may rely on them now for earlier plan years.

Not well versed on Trump accounts? Read “An Overview of §530A Trump Accounts.”

Below are the key points that practitioners need to know to advise clients on whether or not to consider offering this benefit.

Overview of Provision

An employee can exclude up to $2,500 (indexed to inflation after 2027) from income per year for contributions paid by the employer to the Trump account of the employee or the employee’s dependent via a §128(c) Trump account contribution program.

These amounts count toward the $5,000 per year overall annual limit (indexed to inflation after 2027).

Pre-Tax Employee Salary Reduction

An employee can elect to contribute to a Trump account via a §125 cafeteria plan and the salary reduction is excluded from the employee’s income. As the preamble states: “In the long run, the most important aspect of section 128 is likely to be the ability of employers to facilitate pre-tax contributions by their employees.” See Prop. Reg. §1.128-2(a).

The §125 salary reduction is only available for a contribution to a dependent’s Trump account; it is not available for an employee’s own Trump account. See Prop. Reg. §1.128-2(d)(7).

Not a Payroll Tax Exclusion

Any Trump account contributions excluded from income under §128(a) remain wages subject to Social Security, Medicare, and unemployment taxes; however, they are not subject to federal income tax withholding. See the preamble to the proposed regulations and Notice 2001-14.

No Benefit for Self-Employed Individuals

Partners, sole proprietors, directors serving solely as directors, and 2-percent S corporation shareholders, as defined in §1372(b), cannot participate in a §128(c) Trump account contribution program. However, these individuals may maintain a program covering the employees of the trade or business even though they cannot participate. See Prop. Reg. §1.128-1(b) and the preamble to the proposed regulations.

Though the proposed regulations do not address §318 attribution, individuals who are 2-percent shareholders by attribution also cannot participate in a §128(c) Trump account contribution program, since §1372(b) directly references §318 attribution.

A shareholder-employee of a C corporation is a common-law employee and can participate in a §128(c) Trump account contribution program.

The $2,500 Limit Is Per Employee

The $2,500 annual limitation applies per employee across all dependents and employers. The employee must include any amount contributed in excess of $2,500 in gross income; this must be identified by the employee or their tax professional. See Prop. Reg. §1.128-2(d)(5)(ii).

Example. In tax year 2027, Hector is unmarried and has two dependents. He works for two employers and each offers a §128(c) Trump account contribution program. The maximum amount that can be contributed tax-free across all of Hector’s employers and dependent Trump accounts is $2,500. If more than $2,500 is contributed, Hector must include the difference in gross income on his individual tax return. See Prop. Reg. §1.128-2(d)(5)(vi), Ex. 1 and 4.

An employee's receipt of excess Trump account contribution program contributions due to participation in programs sponsored by more than one employer will not cause those programs to fail to be Trump account contribution programs provided that each program prohibits the payment of contributions with respect to an employee in excess of the annual limitation. See Prop. Reg. §1.128-2(d)(5)(iii).

Two Spouses Can Contribute $2,500 Each

A dependent is defined as an individual the employee anticipates will be a §152 dependent, and spouses filing a joint return are each treated as having the child as a dependent. For divorced or separated parents, or spouses filing married filing separately, only one parent can claim the child, so only one can direct a Trump account contribution. See Prop. Reg. §1.128-1(a).

Each spouse may direct a full $2,500 to the same child’s account, whether they work for the same employer or different ones; however, that will exhaust the annual $5,000 overall contribution limit. See Prop. Reg. §1.128-2(d)(5)(vi), Ex. 2 and 3.

Nondiscrimination Rules

The contributions or benefits provided under the Trump account contribution program must not discriminate in favor of highly compensated employees (HCEs) or their dependents. A Trump account contribution program that provides benefits on the same terms for all eligible employees satisfies this requirement. See Prop. Reg. §1.128-3(a).

A Trump account contribution program that fails the nondiscrimination requirements remains a Trump account contribution program with respect to non-HCEs; only the HCEs lose the exclusion. See Prop. Reg. §1.128-3(g).

Matching Program for $1,000 Pilot Payment

Several large employers announced they would match the $1,000 the government contributes under the §6434 pilot program for children born in 2025 through 2028. Any matching amounts would be under a §128(c) Trump account contribution program, and the proposed regulations provide a safe harbor to exempt these contributions from some nondiscrimination requirements if made under a pilot match contribution arrangement as described in the proposed regulations. See Prop. Reg. §1.128-3(d).

Example. Mary’s employer offers a §128(c) Trump account contribution program. Her employer contributes $1,000 to Mary’s dependent’s Trump account as a $1,000 pilot program match, and Mary contributes $2,500 through a §125 cafeteria plan salary deferral. Since the total employer contributions exceed $2,500, Mary’s employer must designate $2,500 as a §128(c) contribution and $1,000, the excess amount, as a non-§128(c) contribution, and include $1,000 in Mary’s gross income and wages.

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