The U.S. budget reconciliation act (H.R. 1) introduces a new way to save for children on a tax-advantaged basis through Trump Accounts (TAs), with contributions permitted beginning July 4, 2026. TAs function similarly to Individual Retirement Accounts, where investments grow tax-deferred through a new Internal Revenue Code (IRC) Section 530A. No distributions are permitted before the child reaches age 18. This period is referred to as the growth period. Upon reaching age 18, the beneficiary may withdraw amounts from the fund for any purpose and will pay applicable taxes.
The federal government will make a one-time $1,000 contribution to the TA of each eligible child born from 2025–28, and parents can contribute up to $5,000 to a child’s TA annually. A key feature is that employers may make tax-free contributions through a Trump Account Contribution Program (TACP) of up to $2,500 per employee per year. Employees also may be permitted to make pre-tax salary reduction contributions for their child’s TA through a Section 125 cafeteria plan.
DOL technical release addresses ERISA status questions
The Department of Labor (DOL) recently issued a Technical Release to clarify that in most situations, employer and employee TACP contributions don't create a benefit subject to ERISA. In an accompanying news release, Acting Secretary of Labor Keith E. Sonderling stated that the new guidance should provide the clarity that employers need as the administration rolls out Trump Accounts.
Accordingly, employers contributing to TAs or facilitating pre-tax payroll contributions to TAs generally aren't required to establish ERISA plan documents and Summary Plan Descriptions, file Form 5500s, follow the strict ERISA claims and appeals requirements, or satisfy the standard ERISA fiduciary duties. However, the TACP rules do still require a separate written plan document. Also, rules like the IRC Section 129 dependent care flexible spending account requirements regarding nondiscrimination, eligibility, notification, statements and benefits apply. More guidance in these areas is expected.
The DOL release also addresses less common situations, such as TA contributions for employees (as opposed to their children) who are under age 18 and still in the growth period, and employers who allow after-tax contributions to TAs outside a Section 125 cafeteria plan. These arrangements also generally avoid ERISA status if employers meet specified conditions in the release.
IRS guidance expected to address employee pre-tax contributions
The IRS previewed its next major piece of expected TACP guidance in Notice 2025-68. The notice says that employers may allow employees to contribute to TAs on a pre-tax basis through the Section 125 cafeteria plan. However, it states that the Treasury Department and IRS intend to address rules for this purpose in forthcoming proposed regulations. While some companies have pledged to make employer contributions, many employers may instead choose only to facilitate employee pre-tax contributions as their TACP offering. Accordingly, the next round of upcoming IRS guidance addressing cafeteria plan procedures for TACPs will likely be the most relevant to employers as they begin to implement the arrangements.
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