Employers May Offer a New Benefit Through “Trump Accounts”

The One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025, establishes the pilot program for the “Trump account,” an investment account for U.S. citizens under age 18 with a social security number. Parents, as well as other tax-paying entities, may contribute to a Trump account on behalf of their child every year until the child turns 18. The Trump account will operate much like an IRA once the child turns 18.

Contributions to a Trump account (which are non-deductible, so made from after-tax funds) are capped at $5,000 a year, and this figure will be indexed to inflation starting in 2027. Children who were born between January 1, 2025, and December 31, 2028, will receive an initial $1,000 federal deposit. Individuals who do not qualify for the initial $1,000 deposit may still open a Trump account if they are eligible. Eligible individuals may open a Trump account beginning January 1, 2026. The OBBBA requires Trump accounts to be invested in “eligible investments” including mutual funds or exchange-traded funds that track a qualified index. 

The Trump account is like a traditional IRA with several key differences 

The OBBBA provides that Trump accounts are to be treated in the same manner as a traditional IRA. As noted below, however, there are notable differences that distinguish these accounts.

The Audience

Trump accounts are intended to allow individuals under the age of 18 to begin saving for future expenses. Unlike a traditional IRA, the Trump account has no earned income requirement, meaning contributions can begin the same year the beneficiary is born.   

Contributions

“Taxable entities,” which includes individuals such as parents or family members, may contribute up to $5,000 annually of after-tax dollars to a Trump account. In contrast, annual contributions to an IRA, which are capped at $7,000 for individuals under age 50 and $8,000 for individuals over 50, are tax-deductible. Trump account earnings from investment will not be included in the beneficiary’s gross income. Once the beneficiary turns 18, however, the Trump account will follow traditional IRA rules under section 408 of the Internal Revenue Code. 

Notably, cities, states, tribal governments, and tax-exempt entities such as private foundations and nonprofit organizations are not subject to the $5,000 limit so long certain conditions are met. These contributions would not count towards the $5,000 limit. Such contributions may be made so long as they are made on behalf of children in a “qualified class,” which is defined as all beneficiaries under 18, all beneficiaries in a specific geographic location with at least 5,000 beneficiaries, or all beneficiaries who were born in one or more years specified by the contributing entity.  

Impact on Employers

The Trump account differs from a traditional IRA because it allows an employer to contribute directly to a Trump account. This option may appeal to employers that seek to attract and retain employees with children or are planning to have children. If the employer chooses to make contributions, employers must have a written plan that follows certain rules such as the prohibition of discrimination against certain income groups and notice to eligible employees. Contributions could also be made by an employer to an employee who is under the age of 18 and has their own Trump account.

Employers may choose to contribute up to $2,500 either directly to the employee or the employee’s dependent. This contribution will count towards the annual $5,000 limit, and be indexed to inflation starting in 2027. Such contributions will not be included in the employee’s gross income.  

Distributions

The Trump account grows tax-deferred until the beneficiary makes withdrawals, which is permissible only after the beneficiary turns 18. Distributions after age 18 follow IRA rules, which means withdrawn contributions are subject to regular income tax but may be subject to a 10% penalty if the individual is under the age of 59 ½ unless an exception applies. As is the case with a traditional IRA, distributions will not be subject to the 10% additional tax in many circumstances including, but not limited to, qualified higher education expenses, qualified first-time homebuyers, and recovery from federally declared disasters. 

Conclusion

While employers may consider offering Trump account contributions to appeal to employees who have children or are planning to have children, there is still much we do not know about them. It is likely that the IRS will need to issue regulations to offer guidance. Littler will continue to monitor this pilot program for employers that are considering contributing to a Trump account of an employee’s child.