Trump Accounts and Your Cafeteria Plan: What Employers Should Know

Trump Accounts are generating a wave of questions from employers, and one of the most common is whether they can be funded through existing benefit programs, like a Section 125 cafeteria plan. The short answer: yes, but only in specific ways, and the rules are still being finalized. Here’s what’s settled today.

First, what is a Trump Account?

A Trump Account is a new type of tax-advantaged account structured much like a traditional IRA established for a child under age 18. Created by the One Big Beautiful Bill Act in 2025, these accounts allow up to $5,000 in total annual contributions (indexed after 2027) from a mix of sources, including parents, employers, and, for eligible children born 2025–2028, a one-time $1,000 federal “pilot” contribution.

Timing matters: no contributions of any kind could be made to a Trump Account before July 4, 2026.

Two ways an employer can be involved

There are two distinct mechanisms here, and keeping them separate is the key to understanding the rules:

• Direct employer contributions under Internal Revenue Code Section 128, and
• Employee pre-tax contributions through a Section 125 cafeteria plan (salary reduction).

Direct employer contributions (Section 128)

Section 128 allows an employer to contribute up to $2,500 per employee per year (indexed after 2027), which is excluded from the employee’s taxable income. Those contributions can go to the account of the employee’s dependent or, in the less common case of a minor employee, to the employee’s own account. A few things to know:

• The $2,500 cap is per employee in total, not per child. An employee with three eligible children still has one $2,500 ceiling to allocate.
• Employer contributions count toward the child’s overall $5,000 annual limit.
• They run through a formal, written Trump Account Contribution Program with eligibility, nondiscrimination, notice, and annual-statement requirements similar to a dependent care assistance program.

Pre-tax contributions through a cafeteria plan (Section 125)

Employees may also fund Trump Accounts on a pre-tax basis through salary reduction under a Section 125 cafeteria plan with one important limit, summarized below:

Contribution route	Permitted?
Employer contribution to a dependent’s Trump Account (Section 128)	Yes
Employer contribution to a minor employee’s own account (Section 128)	Yes
Employee pre-tax salary reduction to a dependent’s account (Section 125)	Yes
Employee pre-tax salary reduction to the employee’s OWN account	No

The reason salary reduction can’t fund the employee’s own account is technical but important: it would be treated as an impermissible deferral of the employee’s compensation under the cafeteria plan rules (Section 125(d)(2)(A)). A contribution to a dependent’s account doesn’t raise that problem.

Two more practical points. An employee’s pre-tax salary reduction is capped at $2,500 and is reduced by any direct employer contribution, so the two mechanisms share a combined $2,500 ceiling; they don’t stack. And on the back end, employer Section 128 contributions are reported on the W-2 (Box 12, code “TA”) and must be identified to the account trustee as Section 128 contributions.

The rules aren’t final yet

This is a fast-moving area. The IRS and Treasury issued initial guidance in Notice 2025-68 (December 2025) and proposed regulations in March 2026, but those regulations were narrow, and the rules specifically coordinating Trump Account programs with Section 125 cafeteria plans have not yet been published. Separately, the Department of Labor addressed whether these arrangements fall under ERISA in Technical Release 2026-02. Employers should expect further guidance and treat program design as provisional until it arrives.

Deciding whether it’s worth it

For employers whose goal is a tax-favored benefit for employees with children, a Section 128 program can be a differentiator, but it carries genuine administrative responsibilities: plan documentation, nondiscrimination testing, participant notices and annual statements, payroll and cafeteria-plan coordination, and W-2 reporting.

For employers who simply want to offer a financial-wellness perk, a simpler path may be additional taxable compensation that employees can direct into a savings or custodial account of their choosing – – no special tax treatment, but far less to administer. Trump Accounts are not currently part of Navia’s product roadmap. Expansion into retail custodial and investment account administration would represent a significant shift away from Navia’s current strategic priorities and core service model.