IRS Weighs Non-Discrimination Rules, Trustee Choice in Crafting Trump Account Guidance

WASHINGTON — The Internal Revenue Service is actively developing regulations for the new tax-advantaged “Trump Accounts,” with officials detailing key factors under consideration, including the application of non-discrimination rules for employer contributions and the selection of trustees. The guidance, expected later this year, will provide critical clarity for employers and families ahead of the accounts becoming available for contributions in 2026. Established under the Working Families Tax Cuts legislation, these accounts are designed as a new savings vehicle for children. According to IRS Notice 2025-68, an election can be made to establish an account for any eligible child who has not reached age 18. While the accounts can be set up sooner, the IRS has stated that contributions cannot be made before July 4, 2026. The structure allows for significant contributions from various sources. The aggregate annual contribution limit is $5,000 per account beneficiary. This includes a provision for employers, under Section 128, to contribute up to $2,500 per year to an employee's account or their dependent's account. A key benefit for businesses offering this is that the employer contribution will not be counted as taxable income for the employee. These annual contribution limits are scheduled to be indexed for inflation beginning after 2027. The IRS has also outlined a $1,000 pilot program contribution, with further details on eligibility and timing to be provided in the forthcoming regulations. The agency has released a draft version of Form 4547, “Trump Account Election(s),” which will be used to establish the accounts and enroll in the pilot program once finalized. As the IRS crafts the final rules, it is weighing several complex policy and administrative questions. One of the most significant, according to an agency official cited by Bloomberg Tax, involves how to apply non-discrimination rules to employer contribution programs. These rules are designed to ensure that tax-favored benefits do not disproportionately favor highly compensated employees, a standard feature of other employer-sponsored retirement and benefit plans. The final guidance will dictate how businesses must structure their contribution programs to remain in compliance. Another area under review is the choice and responsibilities of the account trustee. The agency is also considering public comments on the fundamental mechanism for opening accounts. According to documents published in the Federal Register, the Treasury Department and the IRS have received proposals urging them to create an automatic enrollment, or “opt-out,” system. Proponents argue that automatically creating an account for every eligible child using existing tax return or Social Security Administration data would significantly increase participation, citing the success of similar automatic enrollment designs in state-run savings programs and 401(k) plans. The public comment period for the initial guidance laid out in Notice 2025-68 is set to end on February 20, 2026. The IRS has indicated it may issue proposed regulations on some aspects before that deadline, with final rules expected to be in place before contributions begin. For businesses, the introduction of Trump Accounts presents a new tool for employee compensation and benefits. The ability to make tax-advantaged contributions could become a valuable offering in competitive labor markets. However, the operational details will depend heavily on the final IRS regulations, particularly the non-discrimination requirements, which will shape how broadly and equitably companies must offer the benefit. A significant consideration for individuals and families planning to contribute is the current gift tax treatment. Tax experts at Carr, Riggs & Ingram note that under existing law, contributions to a Trump Account are considered “gifts of future interests” because the child beneficiary cannot access the funds until reaching a certain age. This classification means the contributions do not qualify for the annual gift tax exclusion, which is $19,000 per recipient for 2026. Consequently, any individual contributing more than the annual exclusion amount to various recipients in a year could face gift tax implications, a crucial detail for financial and estate planning. While these new accounts offer an intriguing option for long-term savings and as a potential employee benefit, the details are far from settled. In our experience, new tax legislation often contains complexities that are not immediately apparent. The unresolved questions around gift tax treatment and the specific non-discrimination rules for employer contributions are significant hurdles that require professional guidance. Businesses considering this as a new benefit must be prepared to navigate a new set of compliance standards. For individuals, assuming contributions automatically fall under the annual gift tax exclusion could lead to unexpected tax liabilities. This is precisely the type of evolving regulatory landscape where professional tax preparation and compliance services are essential. C&S Finance Group LLC helps clients understand and plan for these changes, ensuring they can take advantage of new opportunities without incurring unforeseen risks. Visit us at csfinancegroup.com to learn how we can assist your business. With the July 4, 2026, start date for contributions approaching, businesses, financial planners, and families should continue to monitor announcements from the Treasury Department and the IRS. The final regulations, expected after the comment period closes in early 2026, will provide the definitive framework needed to implement and utilize these new savings accounts effectively.