What Valley businesses should know about new Trump Account rules

Trump Accounts are a new type of investment account designed to help children start building savings early — and businesses can now help fund them for their employees.

Created under the federal tax law passed last year, the accounts allow money to be invested in certain funds that track the U.S. stock market. Families and others can generally contribute up to $5,000 a year, and eligible children born from 2025 through 2028 can receive a one-time $1,000 contribution from the federal government. Money generally cannot be withdrawn before the year the child turns 18.

Now employers have a role, too.

Businesses can contribute up to $2,500 per employee each year to a Trump Account belonging to the worker or one of the worker’s dependents. If the contribution is made through a qualifying employer program, that money is not counted as taxable income for the employee. 

The U.S. Department of the Treasury and Internal Revenue Service released proposed rules on Tuesday that provide more detail about how those employer programs would work.

For Rio Grande Valley businesses, the rules create another potential employee benefit — but they also come with an important catch for self-employed business owners.

Employers can contribute up to $2,500

The most important number for businesses is $2,500.

An employer can contribute up to that amount per employee each year to the employee’s Trump Account or accounts belonging to the employee’s dependents.

The limit is per employee, not per child.

For example, if an employee has two children with Trump Accounts, an employer couldn’t contribute $2,500 to each child’s account. The employer could contribute up to $2,500 total for that employee and divide the money between the accounts. 

Employer contributions also count toward the general $5,000 annual contribution limit. The federal government’s one-time $1,000 contribution for eligible children does not count toward that $5,000 limit.

The U.S. Treasury said more than 50 companies have already committed to making Trump Account contributions for their employees.

Treasury Secretary Scott Bessent said the employer benefit gives companies another way to help workers build savings for their families.

“Today, Treasury is publishing guidance that will help families grow Trump Accounts by allowing employers to contribute up to $2,500 tax-free each year for employees’ dependents,” Bessent said Tuesday.

Employees can put in pre-tax money, too

Employers have another option under the rules.

Businesses can allow employees to direct some of their own pay into their dependents’ Trump Accounts on a pre-tax basis through a qualifying cafeteria plan.

There is an important distinction: an employee could use that option to contribute to a dependent’s Trump Account, but not the employee’s own account. 

Self-employed owners are left out of the employer benefit

The proposed rules contain an important restriction for self-employed business owners.

Sole proprietors, partners and 2% shareholders of S corporations would not be considered employees who can participate in their own employer Trump Account contribution programs.

In other words, a self-employed Valley business owner couldn’t create an employer program and then use it to make a tax-free $2,500 employer contribution to a Trump Account for themselves or their own child.

That doesn’t mean they can’t have Trump Accounts for their children.

They can still open accounts for eligible children and contribute money under the regular rules. They just can’t use the employer contribution program to get the special tax treatment for themselves or their dependents.

And a self-employed business owner can still offer the employer benefit to actual employees and their dependents.

So, put simply: A business owner can give the employer benefit to workers but can’t use it personally.

Businesses would have to set up a formal program

Employers interested in making the tax-free contributions can’t simply put $2,500 into an employee’s account and call it an employer benefit.

Businesses must establish a separate written Trump Account contribution program. The rules include requirements covering employee eligibility, notices, annual statements and reporting. 

Employers would also have to follow nondiscrimination requirements intended to prevent businesses from designing the benefit primarily for highly compensated employees.

The benefit could give businesses another tool to add to their compensation packages as they compete for workers.

The Treasury says more than 50 companies have already committed to Trump Account contributions. Companies including ADP, Chime, Franklin Templeton, Kraken, State Street, Vanguard and Visa were among those highlighted in the Treasury’s announcement on Tuesday.

The bottom line for Valley businesses

For employers, the new benefit is relatively straightforward: A business can contribute as much as $2,500 per employee each year to Trump Accounts for workers or their dependents without that qualifying contribution being treated as taxable income for the employee.

Businesses that want to offer it will have to establish a formal program and follow federal requirements.

For self-employed owners, the distinction is just as important. They can establish a program for their workers, but under the proposed rules, they can’t use that employer tax benefit for themselves or their own children.

The Aug. 11 regulations are still proposed, meaning Treasury and the IRS could make changes before issuing final rules.