On August 11, 2026, the IRS released proposed regulations addressing employer Trump Account contribution programs and clarifying how the nondiscrimination rules would apply to both those programs and employer-sponsored dependent care assistance programs (DCAPs). For cafeteria plan and DCAP administrators, the most relevant aspects of the proposed rules are the circumstances in which Trump Account contributions could be offered through a Section 125 cafeteria plan and the proposed clarifications to DCAP nondiscrimination testing.
Background
The One, Big, Beautiful Bill Act (OBBBA) added new Code Section 530A, creating Trump Accounts as a new type of traditional IRA for eligible children. These accounts are intended to encourage early retirement savings, with special rules limiting contributions, withdrawals, and investments until the year in which the child attains age 18. Because Trump Accounts involve tax, custodial account and investment considerations outside the scope of cafeteria plan and DCAP administration, employees and employers should refer to the IRS Trump Account website and consult with tax and retirement advisors for guidance on account establishment, beneficiary eligibility, investments, and tax aspects.
For employer plan purposes, the key issue is Code Section 128, which allows certain employer contributions to Trump Accounts to be excluded from an employee’s gross income if they are made under a separate written Trump Account contribution program. The exclusion is limited to $2,500 per employee for 2026 and 2027, indexed after 2027, and applies to contributions for the employee or the employee’s dependents, subject to the program requirements.
Notably, the proposed regulations also address the nondiscrimination rules applicable to DCAPs, since Trump Account contribution programs will be subject to similar rules. DCAPs allow employers to exclude qualifying dependent care assistance expenses from an employee’s gross income. The annual DCAP exclusion is $7,500 or $3,750 for married individuals filing separately. For DCAP plan sponsors, the changes to the proposed rules may help some DCAPs pass nondiscrimination testing, particularly when participation and utilization are low among non-highly compensated employees (NHCEs).
Employer Trump Account Contribution Programs
Under the proposed rules, an employer seeking to contribute to employees’ or dependents’ Trump Accounts must adopt and operate a separate written Trump Account contribution program. The program should address eligibility, contribution rules, account designation procedures, employee certifications, notice and reporting procedures, the plan year, and the process for correcting administrative failures. Among other items, the proposed rules clarify that:
- Contributions could be made only for an employee or dependent who is still in the account’s growth period, which generally runs through December 31 of the year they attain age 17.
- The tax exclusion for the employer contribution would be limited to $2,500 per employee for 2026 and 2027, regardless of the number of dependents or employers.
- Employers could rely on employee certifications for dependent status and age. However, they would need a reasonable method to verify that the specified account for employer contributions is a valid Trump Account.
- Eligible employees would need to receive notice of the program, and annual contribution reporting could be provided on Form W-2.
An employer could not limit contributions to accounts held by selected trustees, once options become available, because each beneficiary may have only one Trump Account. Employers would need to identify contributions that are subject to the tax exclusion and provide corrective notice to the trustee within a reasonable timeframe (21 days is a safe harbor) if an amount is later determined not to qualify.
Cafeteria Plan Salary Reduction
A Trump Account contribution program could be offered through a Section 125 cafeteria plan salary reduction, but only for contributions to a dependent’s Trump Account. (Salary reduction contributions could not be made to the Trump Account of an employee under age 18 because that arrangement would raise deferred compensation concerns.) If an employer offers the benefit through a cafeteria plan, the cafeteria plan would need to describe the benefit and allow prospective election changes at least monthly.
Nondiscrimination Rules for DCAPs and Trump Account Contribution Programs
The proposed regulations are significant for DCAP administration because they address several longstanding nondiscrimination testing concerns. Trump Account contribution programs would be subject to similar rules as are applied to DCAPs. DCAPs must satisfy four nondiscrimination tests – a contributions and benefits test, an eligibility test, a 5% owner test, and a 55% average benefits test – to ensure the arrangement does not favor highly compensated employees (HCEs). For this purpose, HCEs are defined to include a more-than-5% owner/shareholder and any employee with compensation more than the indexed threshold ($160,000 for 2026).
Contributions and Benefits
Contributions or benefits generally could not be provided on more favorable terms to HCEs or their dependents. A program that makes the same benefit available on the same terms to all eligible employees would satisfy the contributions and benefits requirement, even if HCEs and NHCEs elect or use the benefit at different rates. This distinction is important because the rule focuses on the terms under which benefits are offered, not whether different groups ultimately elect the benefit at the same rate.
Eligibility
The proposed eligibility rules would also clarify that eligibility classifications must be reasonable, based on objective business criteria, and nondiscriminatory in operation. Examples of reasonable classifications may include job category, salaried or hourly status, geographic location, or similar bona fide business criteria. A classification could satisfy the proposed eligibility requirement under either a facts-and-circumstances standard or a numerical safe harbor based on the percentage of NHCEs and HCEs eligible for the program.
Owner Concentration
For DCAPs, the proposed regulations would retain the separate owner concentration rule, which limits benefits for more-than-5% shareholders or owners, and their spouses or dependents, to no more than 25% of total dependent care assistance provided during the year. No comparable owner concentration rule would apply to Trump Account contribution programs, although self-employed individuals could not participate in a Section 128 program in their capacity as self-employed individuals.
Average Benefits
For many employers that sponsor DCAPs, the 55% average benefits test is the most difficult to pass. A program satisfies this statutory test if the average benefits provided to NHCEs under all DCAPs and Trump Account contribution programs of the employer, respectively, are at least 55% of the average benefits provided to HCEs.
Under the proposed approach, the average benefits test would compare the average DCAP or Trump Account contribution plan benefits actually received by participating NHCEs with the average benefits actually received by participating HCEs. Employees who are eligible but receive no benefit during the year generally would not be included in the average benefits calculation. This appears to clarify that the 55% average benefits test focuses on the level of benefits received by participating employees, rather than participation rates among all eligible employees. As a result, the test may be less affected by employees who are eligible for the program but do not receive benefits during the year.
Thus, the proposed rule may be a meaningful change from the way many employers that sponsor DCAPs have historically approached the test, where eligible nonparticipants could depress the NHCE average and contribute to a testing failure. The proposed rules also allow employers to exclude employees who earn less than $25,000 annually, which may also assist DCAPs in passing the 55% average benefits test going forward.
Pilot Match Safe Harbor and Correction Rules
The proposed rules include a narrow safe harbor for employer matches of the federal Trump Account pilot contribution (i.e., the one-time federal government contribution for eligible children born in 2025 through 2028). If offered on the same terms to all non-excluded employees, those match contributions would be disregarded for the contributions-and-benefits rule and average benefits test, but not the eligibility test.
The proposed rules also clarify the correction measures for certain test failures. An average benefits test failure and a DCAP owner concentration failure could be corrected by including only the excess benefit amount necessary to satisfy the applicable test in income for affected individuals by the Form W-2 furnishing deadline. The proposed regulations provide a formula for determining the amount that must be included in income. Rather than requiring taxation of the entire benefit, the proposed correction method generally focuses on the excess amount needed to eliminate the testing failure. NHCEs generally do not lose favorable tax treatment.
Employer Takeaway
The proposed rules provide an initial framework for offering tax-favored employer contributions to Trump Accounts. Many employers may choose to wait for the issuance of the final rules before moving forward with implementing a contribution program. Because Trump Accounts are new and raise tax and account-administration questions beyond the cafeteria plan rules, employers considering this benefit should consult with tax and retirement advisors for guidance.
From a cafeteria plan administration perspective, employers considering the benefit would need to evaluate whether salary reduction contributions would be offered for dependents’ accounts, how the benefit would be reflected in cafeteria plan documents, how often elections would be permitted, and how contribution processing would be coordinated with payroll and any third-party administrators.
For employers that sponsor DCAPs, the proposed average benefits testing methodology may be especially helpful for employers and administrators that have struggled with low NHCE utilization. Employers may want to review current DCAP testing practices, eligibility classifications, owner concentration monitoring, and year-end correction procedures in light of the proposed guidance.
The rules are proposed to apply to plan years beginning on or after final regulations are published, but employers may rely on them now. Comments on the proposed rules are due by September 25, 2026, and a public hearing is scheduled for October 15, 2026.