First Trump Accounts Rules: $5,000 Yearly Cap, $2,500 Employer Money, Index Funds Only

The Treasury Department and the IRS on December 2, 2025 released the first detailed guidance on Trump Accounts, the children's investment accounts created by this summer's tax law. Notice 2025-68 previews proposed regulations and answers practical questions about opening accounts, funding them and investing the money. For higher-earning parents, the notice clarifies how much can go in, what employers can add and how the tax bill is eventually settled.

What changed

A Trump Account is a type of traditional IRA opened for a child who has not turned 18 by the end of the year in which a parent or guardian makes the election. The election is made on Form 4547, released in draft. Until the year the child turns 18, a "growth period" applies with its own restrictions, after which the account generally follows ordinary IRA rules.

The notice lists five kinds of money that can go in:

• a one-time $1,000 pilot program deposit from Treasury for eligible U.S. citizen children born from January 1, 2025 through December 31, 2028;
• qualified general contributions from states, localities, the federal government, tribal governments or 501(c)(3) charities for a defined class of children;
• employer contributions under new Section 128;
• rollovers from another Trump Account;
• contributions from anyone else, including parents, grandparents and the child.

No contributions can be made before July 4, 2026. Employer and family money together are capped at $5,000 a year, with inflation adjustments after 2027. The pilot deposit and qualified general contributions do not count toward that cap. Withdrawals are generally barred until January 1 of the year the child turns 18.

The investment and fee rules

During the growth period, the account may hold only mutual funds or exchange-traded funds that track an index of primarily U.S. companies, such as the S&P 500. Eligible funds cannot use leverage and cannot charge annual fees and expenses above 0.1% of the balance. That excludes individual stocks, sector bets, bonds and most actively managed products, and it puts these accounts closer to a low-cost index portfolio than to a self-directed brokerage account.

What employers can add

Section 128 lets an employer put up to $2,500 a year into the Trump Account of an employee or an employee's dependent without the amount counting as the employee's income. That $2,500 is part of the $5,000 overall cap and is also indexed after 2027. According to KPMG's summary, the employer needs a separate written plan for the exclusive benefit of employees, and it must meet requirements modeled on dependent care assistance programs, including nondiscrimination and notification rules. Plans that tilt toward highly paid staff may therefore run into testing limits.

The after-tax math

Contributions are not deductible, and the money grows tax-deferred. The notice draws a sharp line on basis. Pilot deposits, qualified general contributions and Section 128 employer contributions create no basis, so every dollar of them is taxable when eventually withdrawn. Money from parents, grandparents or other individuals does create basis, which comes back tax-free.

Example: a family with $600,000 of wages is in the 35% federal bracket. If the employer offers a $2,500 Section 128 contribution instead of $2,500 of extra salary, the parent avoids about $875 of federal income tax now. The trade-off is that the $2,500, and the growth on it, will be taxed as ordinary income when the child takes it out. By contrast, $2,500 contributed by the parent from after-tax pay costs the full $2,500 today but adds $2,500 of basis that is not taxed again.

Points worth discussing with an advisor

Households that already fund 529 plans or custodial accounts often compare the options on three fronts: the index-only menu, the lockup until 18 and the fact that withdrawals of earnings are taxed. Families with a newborn may weigh whether claiming the $1,000 pilot deposit is worthwhile even if they add little more. Business owners may want to examine whether a Section 128 program would pass nondiscrimination tests before promising it to staff. Grandparents who plan to give often consider how contributions fit with their annual gift exclusion.

What to watch

The notice says proposed regulations on opening accounts and on the pilot election may arrive before the comment period closes. Comments on the broader rules are due February 20, 2026. The first contributions become possible on July 4, 2026, and trustees still need to publish which funds will meet the 0.1% fee test.

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.