Trump Account Proposed Regulations

Proposed regulations on Trump accounts came out yesterday.

Key things to note:

My interpretation of the tax deduction loophole from the December IRS Notice is now supported.  Consistent with Notice 2025-68, proposed §1.128-2(d)(7) would provide that a Trump account contribution program may allow an employee to make a contribution via salary reduction under a section 125 cafeteria plan if the contribution is made to the Trump account of the employee's dependent. (So even if the employee is making the contribution through an employer plan, it is tax deductible)

1. The $2,500 section 128 employer contribution limit would apply to each employee, regardless of how many employers the employee has and regardless of how many dependents the employee has.

2. employers must have a written plan that prohibits providing more favorable terms to highly compensated employees.

3. Requires a classification based on objective business criteria (e.g., hourly/salaried, geographic location).

4. Clarifies  an employer may make contributions to a Trump account that are not section 128 contributions because, for example, the contribution exceeds the annual limit for contributions that are excludable from gross income under a Trump account contribution program (and thus taxable)

5. Can only contribute on behalf of employees (so can't contribute to S-corp employees who own 2% or more of the entity)  

6.  in the case of divorced or separated parents, or married taxpayers filing separately, a child cannot qualify as a dependent of both parents and only one of the parents can claim the child as a dependent (and thus qualify for employer tax-free contribution)

Applicability Date

These proposed regulations are proposed to apply to plan years beginning on or after the date final regulations are published in the Federal Register . Taxpayers may rely on these proposed regulations for plan years beginning before the date final regulations are published in the Federal Register .