Employers get a $2,500 tax-free lane into a child's Trump Account

Employers could soon put $2,500 a year, tax-free, into a Trump Account owned by an employee's child. Treasury and the IRS proposed the rules this week, the next step in a rollout that IRS chief Frank J. Bisignano is pushing forward, InvestmentNews reports.

The program would need its own written plan document, maintained solely for employees. Contributions would go to the Trump Accounts of employees or their dependents, and the plan would have to pass nondiscrimination testing. Eligibility, contributions, and benefits could not favor highly compensated employees or their families. That arrangement matches tax-qualified retirement plans. Both require a separate plan document and a nondiscrimination test.

The guidance opens a second way in. Employees could put pretax money into a child's Trump Account through payroll deduction, and some employers are expected to match it. Advisors now have two things to put in front of working parents: an employer match and an employee-funded deduction. Both land tax-free in the child's account.

The child is the part with no precedent. Retirement savings programs are built around the worker's own balance. The dependent rarely shows up in the tax code as the owner of a workplace benefit. A Trump Account contribution program makes a child a participant in an employer's plan without being an employee. That leaves questions the proposal doesn't touch. Who controls the account while the child is a minor? What happens when the parent changes jobs? Does the child own the money at 18, or later? The proposed regulations, as InvestmentNews describes them, set the contribution rules but not the account-governance rules.

Bisignano pitched the proposal as an economic matter. "The proposed regulations will provide a framework for businesses establishing a Trump Account contribution program, a new benefit for American working families," he said in a written statement, as reported by InvestmentNews.

The design is unusual for a workplace benefit. A 401(k) contribution builds the employee's own retirement balance. A Trump Account contribution builds a child's savings balance while improving the parent's cash flow. The nondiscrimination rules add a layer of care. Eligibility, contributions, and benefits cannot favor highly compensated employees or their dependents, so a plan aimed at an owner's children would fail. For the employer, the write-up requirement means someone has to draft plan documents, test the participant group, and monitor the contribution limit. Those are the same chores that make small 401(k) plans administratively heavy.

Small employers may find those chores steeper than the statutory ones. Erin Koeppel, managing director of government relations and public policy counsel at CFP Board, told InvestmentNews the proposals are "a helpful first step" that doesn't go far enough. "Employers – particularly small businesses – will need more practical guidance before they can confidently offer this benefit in 2027."

From an August proposed rule to a 2027 plan year, an employer has only a few months for drafting, testing, and enrollment. Koeppel's warning suggests that without final rules or model documents, small businesses may simply skip the first year.

Third-party administrators that already run 401(k) nondiscrimination tests will likely get the call on Trump Account plans. For a TPA, a new testing routine means new software and new training. For an employer, the benefit now carries a service-provider cost that a plain payroll deduction does not.

The proposal uses the phrase "separate written plan," which is ERISA's language. The coverage does not say whether the Department of Labor helped write the rules. If the program is an ERISA plan, employers inherit fiduciary duties, prohibited-transaction restrictions, and Form 5500 obligations. If it is not, the program sits entirely outside the retirement plan compliance system. The proposed regulations don't answer that question, so sponsors are designing a benefit without knowing which rulebook governs it.

The statute sets a 0.10% fee cap on Trump Accounts, but Treasury has not said where it applies. Contributions would go into low-cost ETFs, Treasury has said. What is open is whether the cap binds at the individual fund level or at the account level, according to InvestmentNews.

A lot rides on that distinction. If the cap applies at the fund level, an ETF expense ratio below 0.10% leaves room for provider or advisory charges on top. If it applies at the account level, all costs, fund expenses, custody, advisory fees, must fit inside one tenth of one percent. That would be a demanding ceiling for any platform. An advisory fee of 25 basis points, common for small-plan RIAs, would be impossible under an account-level cap and merely expensive under a fund-level cap. For a small employer, that single number can be the difference between offering the benefit and skipping it.

The cap also shapes what gets built. At 0.10%, an account-level fee would leave almost no room for a recordkeeper to recover costs. The proposal points to low-cost ETFs as the investment option, which keeps expense ratios thin, but the operational costs of the account, an account for a child owned separately from the employee's own plan balance, still have to be paid by someone. The proposed rules don't say who.

Treasury's low-cost ETF statement answers only where the money sits. The proposed regulations, according to InvestmentNews, don't say how the cap is measured. Koeppel flagged the fee question as one of the lingering sources of employer uncertainty. Until Treasury answers the question, an employer's cost model has a hole in it.

The proposal arrives the same week Treasury published electronic-first rollover standards under SECURE 2.0. Those rules govern how retirement money moves between institutions. The Trump Account rules govern how money enters an account owned by a child. Both are pieces of the same work. The goal is standardizing how money moves through the retirement system.

For advisors, the new channels have a cash-flow side. A parent already maxing out a 401(k) deferral may still have room for a payroll deduction into a child's Trump Account. An employer match on that deduction is money the household would not otherwise see. The nondiscrimination rules keep the benefit from becoming a family-office perk for the owner's kids, though that limit is exactly what a small-business owner will need help thinking through. That thinking is where a financial advisor earns the fee: turning a statutory possibility into a household cash-flow decision.

The proposal gives employers a contribution limit, a plan document, and a nondiscrimination test. It does not give them a price. Until Treasury says whether the 0.10% cap binds at the fund level or the account level, an employer can draft the plan and still not know what it costs to run.