Trump Accounts are federally backed savings accounts designed to help families invest on behalf of children under 18. While Trump Accounts are individually held accounts, employers can make contributions by setting up a Trump Account contribution program. Recently proposed regulations[1] clarify how employers can set up a Trump Account contribution program and how employees can make pre-tax contributions to a Trump Account.
Employer Contributions to Trump Accounts
Contributions from all sources to a Trump Account are limited to $5,000 per year. Employers can contribute $2,500 per year to the Trump Account of an employee[2] or, more commonly, an employee’s dependent(s). Importantly, the employer contribution limit is per employee, not per number of employee dependents. An employee can receive at most $2,500 in employer Trump Account contributions per year regardless of how many dependents they have or how many employers make Trump Account contributions on the employee’s behalf.
A Trump Account contribution program requires an employer to have a written plan document. The Trump Account contribution program document must address:
- Which employees are eligible to participate;
- The rules governing employer contributions, including the amount of the contribution and whether pre-tax employee contributions under section 125 are permitted;
- How an employee designates a contribution to their own Trump Account or the Trump Account of a dependent;
- The required certification, notice, and reporting procedures;
- The plan year; and
- The procedures for correcting administrative failures and for providing notice that Trump Account contributions will not be excludable from an employee’s gross income in certain circumstances.
Trump Account contribution programs are subject to nondiscrimination requirements which prevent contributions from discriminating in favor of highly compensated employees. The nondiscrimination requirements are similar to those that apply to dependent care flexible spending accounts, though they are not exactly the same.
Section 125 Implications
As mentioned above, employees can make Trump Account contributions on a pre-tax basis through a Section 125 plan. Contributions to a Trump Account via Section 125 can only be made to the Trump Account of an employee’s dependent. Employees must also be allowed to change any Trump Account contribution election at least once a month.
Employers who wish to allow pre-tax Trump Account contributions through their Section 125 plan must amend their Section 125 written plan document to permit these contributions.
Key Takeaway: Employers who wish to make contributions to Trump Accounts should review the requirements for establishing a Trump Account contribution program. If employers want that program to include pre-tax employee contributions to Trump Accounts, employers should ensure their Section 125 plan documents are updated to reflect that.
[1] The proposed regulations can be relied upon until final regulations are issued.
[2] An employee must be under 18 to receive a Trump Account contribution from an employer.
The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.
