Treasury Department proposes new tax rules for Trump Accounts

The U.S. Treasury Department and the Internal Revenue Service have issued new guidance regarding Trump Accounts, a type of tax-advantaged savings and investment account for children established by recent tax law.

Under the proposed rules, parents may be able to make pre-tax contributions of up to $2,500 per year into a dependent's account through payroll deductions, similar to health savings or flexible spending accounts. This mechanism is intended to lower the parents' taxable income.

Additionally, the guidance allows employers to contribute up to $2,500 annually toward an employee's or a dependent's Trump Account without the amount being counted as taxable income for the employee. This employer contribution is subject to a broader $5,000 annual limit per account. Treasury Secretary Scott Bessent noted that the guidance provides a framework for employers to support these accounts for employees' dependents.

Trump Accounts are designed to track broad-based investment funds and grow tax-deferred until the child reaches adulthood, at which point they convert to traditional Individual Retirement Accounts. While these accounts offer tax advantages, financial experts note that other vehicles, such as 529 plans, may offer superior benefits for specific uses like education.