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Compliance News Week Ending August 21, 2026 - Trump Account Contribution Programs

8/21/2026

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Overview

A new federal law (the One Big Beautiful Bill Act) lets employers put tax-favored money into a “Trump Account” for an employee or the employee’s child. This type of program is called a Trump Account Contribution Program, or TCAP.

The IRS put out draft rules in August 2026 that employers can start following right away, even though they are yet final.

Employers can contribute up to $2,500 a year per employee, tax-free to the employee, into a Trump Account.
It's a family benefit — money helps a child build savings for the future.
Draft IRS rules are usable now, ahead of the final version.

What Is a Trump Account?

Think of a Trump Account as a special type of IRA (retirement-style savings account) set up for a child.

Can be opened for kids under 18 who have a Social Security number
While the child is young (through the year they turn 17), the account has extra rules and limits — this is called the “growth period”
After that, it basically converts to a normal IRA
All contributions combined (from employers, parents, the child, or others) are capped at $5,000 per year for 2026 and 2027, adjusted for inflation later. Some special contributions (like the government's own pilot payment) don't count against that cap
Kids born between January 1, 2025, and December 31, 2028, may get a one-time $1,000 contribution from the federal government.

What Is a TCAP?

A TCAP is simply the employer's official program for making these contributions. It must be:

Set up as its own separate written plan (not just a verbal policy)
Run solely for employees' benefit
Compliant with rules on who's eligible, how contributions and benefits work, telling employees about it, reporting, and not favoring higher-paid employees.

Employers can also let employees fund a dependent's account through payroll deductions (via a §125 cafeteria plan) — but employees cannot use payroll deductions to fund their own account, only a dependent's.

Who Can Get TCAP Contributions

Only regular (“common-law”) employees and their dependents can receive contributions — and only while the child is still in the “growth period” (through the year they turn 17)
Business owners, partners, and sole proprietors generally can't participate themselves, but they can still set up a TCAP for their staff
The tax-free contribution limit is $2,500 per year, per employee (indexed for inflation after 2027) — even though it's tax-free for income tax, it's still subject to Social Security, Medicare, and unemployment taxes
The $2,500 limit applies per employee overall, not per child or per account — so if an employee has several kids, the employer's total contribution across all of them still can't exceed the cap
If an employee has more than one employer contributing, those contributions are added together toward the cap.

Putting the Plan in Writing

The TCAP needs a written plan document spelling out the details, including:

The plan year
Who's eligible
How contributions work
Whether employees can contribute via payroll deduction
How employees designate which Trump Account gets the money
Required employee certifications
Notice, reporting, and error-correction procedures.

Employers need to actually follow what the written plan says to keep the tax benefits.

Pairing With a Cafeteria (§125) Plan

Employers can combine a TCAP with an existing cafeteria plan so employees can contribute part of their paycheck (pre-tax) into a dependent's Trump Account.

Only a dependent's account can be funded this way — not the employee's own account
Combined employer + employee contributions still can't exceed the $2,500 annual cap
The cafeteria plan document must be updated to describe this new benefit
Unlike most cafeteria plan choices, employees can start, change, or cancel their election throughout the year (similar to how HSA elections work), as long as the change applies to pay not yet received.

Administrative To-Dos for Employers

Tell Employees About It

Employers must reasonably notify eligible employees that the program exists and explain the basic rules.

Annual Reporting

Employers must give each participating employee a yearly statement showing how much was contributed on their behalf.
This can simply be done through the W-2 — for 2026, use Box 12, Code TA.

Employees Choose Where the Money Goes

Employers cannot restrict contributions to certain banks or account providers.
Since a child can only have one Trump Account, employers must send money to whichever valid account the employee designates.

Verifying Eligibility & Fixing Mistakes

Employers can generally trust a signed employee certification (paper or electronic) confirming:

The child is (or will be) their dependent for the year.
The child's date of birth.
There's nothing else that would make the child ineligible.

However, employers still need reasonable steps (on their own or through a payroll provider/trustee) to confirm the account itself is a valid Trump Account and must clearly flag each contribution as a §128 contribution when sending it. If an employer later discovers a contribution should not have qualified, they must notify the account trustee and correct it — there's a 21-day grace period to do so once the mistake is found.

Nondiscrimination — Cannot Favor Highly Compensated Individuals (HCIs)

Because this benefit is tax-favored, the IRS requires it to be offered fairly, not just to highly compensated individuals (HCIs). TCAPs must pass three tests, similar to the rules for Dependent Care Assistance Programs (DCAPs):

Eligibility test — enough regular employees must be allowed to participate
Contributions and benefits test — the benefit cannot be structured to favor HCIs
55% average benefits test — a broad enough share of benefits must go to non-highly-compensated employees

For 2026 testing, “highly compensated employees” generally means certain owners and anyone who earned at least $160,000 in 2025. If a plan fails these tests, it typically affects the tax treatment for the highly paid employees involved. Related companies under common ownership are treated as one employer for this testing.

Special Break for Matching the Government's Pilot Payment

If an employer offers to match the government's $1,000 pilot contribution (for kids born 2025–2028) equally to all eligible employees, that matching money does not count against two of the three fairness tests (contributions/benefits test and the 55% test) though it still counts for the eligibility test.

When This Takes Effect

The rules are technically meant to apply once final regulations are published, but the IRS has said employers can rely on the draft rules right now. That gives employers a workable framework to start a TCAP while the final version is still pending.

Resources

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