Employers Can Put $2,500 Tax-Free Into Your Child's Trump Account Under New Treasury Rules

Employers will be able to put up to $2,500 a year into a worker's Trump Accounts, or a child's account, without it counting as taxable income for the employee, under new Treasury guidance setting out how the benefit will work.

The Treasury Department and Internal Revenue Service have also detailed how workers can use payroll deductions to make pre-tax contributions to a dependent's Trump Accounts.

The new guidance gives employers a framework for setting up contribution programmes, including written plans, employee notices, annual statements and checks that contributions are being sent to a valid Trump Accounts.

Employers Get a $2,500 Tax-Free Route

The new rules allow an employer to contribute up to $2,500 a year towards a Trump Accounts belonging to an employee or the employee's dependent. The $2,500 limit applies to the employee rather than each child, and employer contributions count towards the broader $5,000 annual contribution limit for Trump Accounts.

The employer contribution is excluded from the employee's gross income when it is made under a qualifying Trump Accounts contribution programme. Amounts above the $2,500 limit generally do not receive that exclusion and may have to be treated as wages.

Treasury Secretary Scott Bessent said the guidance would allow employers to contribute 'up to $2,500 tax-free each year for employees' dependents'.

Parents Can Use Pre-Tax Pay for Children's Accounts

The guidance also allows employers to offer Trump Accounts contributions through a cafeteria plan using salary reductions. That option can be used for a dependent's Trump Accounts, but not for an employee's own account.

An employee can make or change a salary-reduction election during the year, provided the election applies only to pay that has not yet become available to the worker. The arrangement must also comply with the rules governing employer-sponsored cafeteria plans.

The result is two separate routes for workplace funding: an employer can make its own contribution, or the employer can allow an employee to direct pre-tax salary towards a dependent's account under a qualifying programme.

The $5,000 Annual Limit Still Applies

Trump Accounts generally have a $5,000 annual contribution limit for individual and employer contributions, with inflation adjustments beginning after 2027.

Employer contributions made under the special Section 128 rules count towards that limit.

The $1,000 federal pilot contribution is separate and does not count towards the $5,000 annual limit. The pilot contribution is available for eligible US citizens born from 2025 through 2028 who have a Social Security number and meet the other requirements.

The IRS says Trump Accounts cannot receive contributions before 4 July 2026 and that the federal government will make the one-time $1,000 contribution for eligible children.

Accounts Are Designed for Long-Term Investing

Money in a Trump Accounts must be invested in certain mutual funds or exchange-traded funds that track a broad US equity index. The proposed regulations require eligible investments to track primarily US companies, avoid leverage and keep annual fees and expenses below 0.1%.

Withdrawals generally are not permitted before the year the child turns 18. After that, the account generally becomes subject to the rules that apply to traditional IRAs.

Employers Must Set up a Formal Programme

Businesses cannot simply transfer money to a child's account and automatically claim the tax exclusion. The proposed rules require an employer contribution programme to have a written plan setting out eligibility, contribution rules, beneficiary designation procedures and compliance requirements.

Employers must also provide notices to employees, report annual contributions and verify that payments are being made to valid Trump Accounts.

The rules allow employers to rely on employee certification for matters such as the beneficiary's age and dependent status, but the account itself must be verified through information from the trustee, payroll processor or another service provider.

More Than 50 Companies Have Signed Up

Treasury said more than 50 companies have already committed to making Trump Accounts contributions for employees. The department said the workplace programmes could also benefit children who do not qualify for the initial $1,000 government contribution.

The guidance is aimed at giving employers clearer rules for administering the new benefit. The Federal Register notice is a proposed rule, meaning the regulations are still subject to the federal rulemaking process.