Trump Accounts Explained: A New Employee Benefit for Families

Speaker A: M foreign. Hello and welcome to Williams Mullins Benefits Companion, a podcast that helps employers navigate the complex legal challenges of managing their employee benefit plans. I'm your host Bryden DeWitt and today I'll be discussing Trump accounts which are a new tax advantage savings vehicle that may create fresh employee benefits opportunities for employers. Before we get into the details, let's start with some background. Trump accounts are a new type of tax advantaged savings account for children. The basic idea is to give children an early financial head start by allowing money to be contributed and invested while they are still minors. At a high level, these accounts operate much like a starter retirement account for children. A parent or guardian or other authorized adult can open an account for an eligible child and contributions can come from several sources, including family members and in some cases employers. The funds generally grow tax deferred and are intended to remain invested until the child reaches adulthood. The purpose of a Trump account is broader than simply creating another savings option. Congress and the IRS frame these accounts as a way to encourage long term savings, introduce children and families to investing earlier in life and potentially expand access to wealth building opportunities for younger Americans. For employers, the important point is that Trump accounts may create a new employee benefit opportunity. Employers may contribute to the accounts for employees children, which could make this an additional family focused benefit to consider alongside other financial wellness, education and dependent care offerings. So today's episode we'll explain what Trump accounts are, who may be eligible and how contributions work and what employers should be thinking about as this new benefit option develops. Trump accounts were created by the One Big Beautiful Bill act which was signed into law in July of UH 2025. The accounts are similar to IRAs and 529 accounts, but they are specifically for children. United States citizens under the age of 18 are eligible for the accounts. The accounts are open and held for the child and are designed to be invested in a low cost diversified US Equity index fund. There is also an opportunity for free money for children born during a pilot window of uh 2025 through 2028. The United States Government will make a seed contribution of $1,000 to the account. Annual contributions to Trump accounts are uh capped at $5,000 and the funds can be withdrawn when the child turns 18 for qualified expenses such as education, a UH first home purchase, or the amounts can remain in the account until retirement. Just like an IRA. As I mentioned earlier, employers may contribute up to $2,500 per year to an employee's or the employee's child's Trump account. That contribution is excluded from the employee's taxable income. So let's think about what that means strategically. This is a genuinely new, differentiated benefit that can help employers compete in a talent market for employees. It's going to resonate especially with working parents and with younger employees who are planning to start families. So let's think about implementation. What would it take if an employer decided to start making contributions to Trump accounts? Well, the first step is to decide, you know, what the contribution will be. How are we going to define the contribution? Will it be a flat amount? Will every eligible employee with an eligible child receive $2,500? Will it be a lesser amount? Will it be a match, uh, based on what the employee puts into the account? So the first question is structure and how much the employer is going to contribute to the plan. And, and once that plan design is structured, as I know, all my clients hear from me all the time, we need to have that plan documented. So we need to have a plan document. Ah, this is not, ah, an ERISA plan, but we still need documentation so that we can communicate clearly with employees as to who is entitled to the benefit and how much the contributions are. So once the plan design is documented, um, the plan will then have to be coordinated with payroll and with account custodians. And speaking of custodians, employees, uh, may have already set up their own Trump accounts for their children and have custodians, uh, to which the contributions could be contributed. Or it could be set up kind of the way employers set up health savings accounts, where the employer establishes a custodian as a relationship with a custodian for the accounts. The, the money is transferred into that custodian's account, and then employees are free to move the money from the custodian's account to their own custodian, if they have one, or they could leave it with the custodian selected by the employer. Another administrative task will be tracking the contributions. So again, the maximum annual contribution from an employer is $2,500. The annual maximum overall contribution is $5,000. So we do not want a situation where the employer is contributing money to an account where the annual maximum has already been exceeded. So a structure, an administrative structure will have to be put in place to make sure that excess contributions are not being made to the Trump account, and communications to employees will be key. This is a relatively brand new benefit. Uh, opportunity Trump accounts are signed into law in July of 2025. Uh, this podcast has been being recorded in July of 2026. So they've only been around, uh, for a year, uh, the concept has only existed for a year. So employees may not really understand what a Trump account is. So educating employees on what the account is, um, as well as providing financial wellness education to help them understand the real benefit of this, of getting money, uh, to, let's say you have a newborn baby and you're getting $5,000 into an account for a newborn baby that will then grow over time until the baby, the child reaches age 18. It's a very powerful tax favored savings vehicle. And so employees will need to be educated on the benefits of this. So if the employer is going to the effort and expense of making the contributions that employees understand, uh, how beneficial this is to their children. And then finally, keep in mind that these are brand new accounts. These are the brand new opportunity under the one big beautiful, uh, Bill Act. And we're receiving additional IRS guidance. We're going to have to monitor how these accounts, um, are to be operated and any new IRS guidance that comes out given the fact that they are so new. So if an employer decides to start implementing Trump accounts, the employer will need to make sure that it's keeping track of any new guidance coming out from the IRS regarding the account. That wraps up this episode of the Benefits Companion. If you have any questions or suggestions for future episodes, please contact me. You can also visit our Employee benefits page@williamsmullen.com employeebenefits there you can find out more about our team as well as past episodes of this podcast and legal alerts. Finally, be sure to subscribe to this podcast to be notified when our next episode posts. Thanks for listening.

Speaker B: This podcast contains general condensed summaries of actual legal matters, statutes and opinions. For information purposes. It is not meant to be and should not be construed as legal advice. Individuals with particular needs on specific issues should retain our services or the services of other competent counsel.