The Department of the Treasury and the Internal Revenue Service (IRS) have issued Notice 2025-68 to provide preliminary guidance on Section 70204 of the "One, Big, Beautiful Bill Act" (OBBBA), Public Law 119-21. This legislation introduces Section 530A, establishing "Trump accounts," and Section 6434, creating a pilot program for government contributions. The provisions generally apply to taxable years beginning after December 31, 2025.

For tax professionals, this Notice outlines a bifurcated retirement vehicle that operates under unique strictures during a beneficiary’s minority (the "growth period") before converting to standard Traditional IRA rules upon the beneficiary attaining age 18.

Establishment and Election Mechanics

A Trump account is defined as a type of traditional individual retirement account (IRA) established for the exclusive benefit of an eligible individual. An eligible individual is defined as a person who has not attained age 18 before the close of the calendar year in which the election is made and who possesses a valid Social Security number.

Unlike standard IRAs, the initial Trump account is technically created or organized by the Secretary of the Treasury. However, an authorized individual must make an affirmative election to open the account. This election will be made on the forthcoming IRS Form 4547, Trump Account Election(s), or via a dedicated portal at trumpaccounts.gov.

The IRS has established a specific hierarchy regarding who holds the authority to make this election if it is not done concurrently with a pilot program election. The priority order is:

Legal guardian,
Parent,
Adult sibling, and
Grandparent.

The IRS justifies this specific ordering rule by citing consistency with Regulations Section 1.529A-2(c)(1)(C), which governs authorized individuals for ABLE accounts. Once an election is processed, no further initial elections may be made for that individual.

The Section 6434 Pilot Program

Taxpayers may simultaneously elect to participate in the "pilot program" under Section 6434. This election triggers a $1,000 payment by the Secretary into the Trump account of an "eligible child". An eligible child is defined as a qualifying child under Section 152(c) who is a U.S. citizen and is born between December 31, 2024, and January 1, 2029.

Practitioners must recognize that this $1,000 contribution is statutorily treated as a "payment against the income tax imposed" for the taxable year. The amount is excepted from offset or reduction. However, the IRS warns that improper elections under this pilot program will create exposure to penalties under Section 6659.

Contribution Framework and Basis Allocation

The Notice delineates a complex contribution regime under Section 530A. During the growth period, contributions are not deductible by the contributor under Section 219. Furthermore, unlike standard IRAs, contributions do not require the beneficiary to have includible compensation.

The IRS categorizes contributions into five distinct types, which dictates the basis treatment within the account:

Exempt Contributions: These include Pilot Program contributions, Qualified General Contributions (from governments or non-profits), and Qualified Rollover Contributions. These are not subject to the annual contribution limit.
Section 128 Employer Contributions: These are excludible from the employee’s gross income.
Contributions from Other Sources: This includes funds from parents or the beneficiary. These contributions specifically create basis in the Trump account,.

Contribution Limits and Timing

The aggregate annual limit for Section 128 employer contributions and "contributions from other sources" is $5,000 for 2026 and 2027, subject to cost-of-living adjustments thereafter,.

Crucially for tax planning, Section 530A(c)(3) suspends the application of Section 219(f)(3) during the growth period. Consequently, contributions must be made by December 31 of the calendar year to count toward that year’s limit; contributions made by the tax filing deadline (e.g., April 15) of the following year cannot be carried back.

Investment Mandates

The IRS enforces strict investment parameters during the growth period. Funds must be invested solely in "eligible investments," defined as mutual funds or ETFs that track a "qualified index". A qualified index generally refers to the S&P 500 or an index comprised of primarily U.S. companies (at least 90% weighting),.

Furthermore, these funds must not use leverage and must have annual fees and expenses not exceeding 0.1 percent of the investment balance. Cash and money market funds are explicitly excluded from the definition of eligible investments, except for temporary holding periods necessary to complete transactions.

Distributions and Hardship Restrictions

The Notice imposes a near-total lock-up on funds during the growth period. Distributions are prohibited with only four statutory exceptions:

Qualified rollover contributions to another Trump account.
Qualified ABLE rollover contributions (permitted only in the calendar year the beneficiary attains age 17).
Distributions of excess contributions.
Distributions upon the death of the account beneficiary.

The IRS explicitly states that hardship distributions are not permitted during the growth period, nor can the account be closed to distribute funds to the beneficiary. Upon death during the growth period, the account ceases to be a Trump account, and the fair market value (less basis) is immediately includible in the gross income of the beneficiary or their estate.

Taxpayer Impact and Reporting on Form 1040

The implementation of Notice 2025-68 introduces several new reporting considerations for tax return preparers.

Income Exclusion and Tax Payments Contributions to the account are generally not includible in the beneficiary’s income when made. Under Section 128, employees may exclude up to $2,500 annually from gross income for employer contributions made to Trump accounts for themselves or their dependents,. This exclusion is per employee, not per dependent. Because the Pilot Program payment is treated as a payment against tax, it will likely function similarly to a refundable credit or estimated tax payment on the Form 1040 series.

Reporting Obligations During the growth period, Trump accounts are exempt from standard IRA reporting under Section 408(i) and are instead subject to Section 530A(i). The trustee is required to report the amount and, critically, the source of contributions. Trustees must distinguish between Pilot Program, Qualified General, Section 128, and "other" contributions to ensure accurate basis tracking.

Post-Growth Transition Upon the beneficiary attaining age 18, the "growth period" ends. While the account retains its designation as a Trump account to prevent aggregation with other IRAs for basis allocation purposes, it generally becomes subject to standard Section 408 rules. This includes the potential applicability of the Section 72(t) 10% additional tax on early distributions if no exceptions apply.

Analogy for Client Advisory

To explain the technical nature of this vehicle to clients, practitioners might compare the Trump Account to a "Time-Locked Vault" built within the framework of a traditional house (the IRA). During the "Growth Period" (minority), the vault is sealed by the architect (the IRS). You cannot remove items (no distributions), and you are strictly limited in what you can put in (only low-fee, US-based index funds). Once the owner turns 18, the time-lock disengages. The vault door opens, and the contents effectively become part of the standard furniture of the house, accessible but subject to all the standard rules of residency (standard IRA taxation and penalties).

Technical Analysis of Section 530A Qualified General Contributions under Notice 2025-68

Notice 2025-68 provides the administrative framework for "Qualified General Contributions," a specific category of funding for Trump accounts authorized under Section 530A(f). For tax professionals, understanding the flow of these funds is critical, as they represent a unique mechanism involving third-party funding channeled through the Department of the Treasury to specific cohorts of beneficiaries. These contributions are statutorily distinct from private contributions regarding basis calculations and contribution limits.

Definition and Eligible Funding Sources

A "qualified general contribution" is defined as a contribution made by the Secretary of the Treasury but funded by a "general funding contribution" from a specific external entity. The Internal Revenue Code permits only specific entities to provide these funds: states (or political subdivisions thereof), the United States, the District of Columbia, Indian tribal governments, or Section 501(c)(3) tax-exempt organizations.

The IRS has clarified that Section 501(c)(3) organizations further their exempt purpose by making these contributions, including distributions from donor-advised funds. The structure of this provision requires the funding entity to apply to the Treasury Department or its agent, rather than contributing directly to the accounts of individual beneficiaries.

The Qualified Class Framework

A defining characteristic of qualified general contributions is that they must be distributed to a "qualified class" of account beneficiaries. The contribution amount is calculated as a ratio of the total general funding contribution divided by the number of beneficiaries within that specified class.

Section 530A(f)(3)(A) strictly limits qualified classes to three categories:

All account beneficiaries currently in the growth period.
All account beneficiaries in the growth period who reside in a specific state, the District of Columbia, or a "qualified geographic area".
All account beneficiaries in the growth period born in one or more specific calendar years.

Practitioners should note that while the statute allows for "qualified geographic areas," the IRS has indicated that for the initial operational rollout, it will not designate geographic areas smaller than a state or the District of Columbia. Consequently, until further guidance designates such areas, a qualified class based on geography is limited strictly to residency in a state or DC.

Furthermore, the Notice explicitly prohibits contributors from imposing eligibility criteria beyond these statutory classes. For example, a contributor cannot restrict a general funding contribution based on income levels or other demographic factors not listed in Section 530A(f)(3)(A).

Operational Mechanics and Minimums

The Treasury Department anticipates opening the application process for these contributions after July 4, 2026. Once operational, qualified general contributions will be available on a quarterly basis, determined by the members of the qualified class at the beginning of that quarter.

For calendar years 2026 and 2027, the IRS has established a de minimis threshold: the application must provide for a general funding contribution equal to at least $25 per account beneficiary in the selected qualified class.

Tax Treatment and Basis Implications

Proper classification of these contributions is essential for accurate tax reporting and basis tracking. Qualified general contributions are categorized as "Exempt Contributions". As such, they are not subject to the annual aggregate contribution limit (set at $5,000 for 2026 and 2027) that applies to private sources and employer contributions.

From a basis perspective, qualified general contributions do not create investment in the contract. Notice 2025-68 states definitively that these contributions do not create basis in a Trump account. Additionally, these contributions are not includible in the gross income of the account beneficiary at the time they are made.

Reporting Requirements

Trustees face specific reporting obligations regarding these funds. Under Section 530A(i), trustees must report the amount and source of contributions to the Secretary and the account beneficiary. When the Treasury transfers a qualified general contribution to a trustee, it will identify the funds as such.

While the immediate source of the transfer is the Treasury, the underlying source is the contributing entity. If the contributor elects to do so on their application, the Treasury will disclose the contributor’s identity to the trustee, who must then report both the amount and the identity of the contributor to the account beneficiary. If no consent is given, the specific identity of the funding entity is not required to be reported to the beneficiary.

Technical Implementation of Section 128 Trump Account Contribution Programs

Notice 2025-68 provides specific guidance regarding Section 128 of the Internal Revenue Code, a new provision established by the "One, Big, Beautiful Bill Act" (OBBBA). This section creates the framework for "Trump account contribution programs," which allow employers to make excludible contributions to the Trump accounts of employees or their dependents. For tax professionals advising business clients, the Notice clarifies the structural requirements of these plans, the specific dollar limitations per employee, and the complex interaction between these programs and Section 125 cafeteria plans.

Plan Structure and Nondiscrimination

A "Trump account contribution program" is defined under Section 128(c) as a separate written plan of an employer established for the exclusive benefit of its employees to provide contributions to Trump accounts. The Notice indicates that the administrative requirements for these programs generally mirror those applicable to dependent care assistance programs. Specifically, requirements regarding discrimination, eligibility, notification, statements, and benefits will be similar to those found in the regulations for Section 129 dependent care assistance programs.

Contribution Limits and the "Per Employee" Rule

Under Section 128(b), the amount excludible from an employee’s gross income is limited to $2,500 annually, subject to cost-of-living adjustments after 2027. Practitioners must emphasize to clients that this limit applies on a per-employee basis, not a per-dependent basis. The IRS explicitly clarifies in Q&A I-1 that if an employee has multiple children with Trump accounts, the employer may only contribute up to $2,500 in the aggregate to those accounts for that tax year.

Furthermore, these employer contributions are not standalone allowances; they are integrated into the overall contribution cap for the account. Section 128 employer contributions are aggregated with "contributions from other sources" (such as parents or the beneficiary) and are collectively subject to the annual limit of $5,000 per account during the growth period. Therefore, an employer contribution of $2,500 effectively reduces the remaining allowable private contributions for that year to $2,500.

Integration with Section 125 Cafeteria Plans

The Notice provides critical guidance regarding the funding of these contributions through salary reduction arrangements. The IRS differentiates between contributions made for the employee's own account versus those made for a dependent's account.

A Trump account contribution program may be offered via salary reduction under a Section 125 cafeteria plan if the contribution is made to the Trump account of the employee’s dependent. However, the IRS explicitly prohibits using a cafeteria plan to fund contributions to the Trump account of the employee themselves. The IRS reasons that although the program is a "qualified benefit" under Section 125(f)(1), a contribution to the employee's own account constitutes deferred compensation under Section 125(d)(2)(A), as the employee would have a vested right to compensation payable in a later year.

Basis and Reporting Obligations

From a tax accounting perspective, Section 128 employer contributions are treated differently than private contributions. While contributions from other sources create basis in the account, Section 128 employer contributions do not create basis.

To ensure accurate basis tracking, the Notice imposes an affirmative duty on the employer. When making a contribution pursuant to a Trump account contribution program, the employer must explicitly indicate to the trustee that the funds represent a Section 128 employer contribution. The trustee is permitted to rely on this designation unless they have knowledge to the contrary. This distinction is vital for the trustee's annual reporting under Section 530A(i), where they must segregate Section 128 contributions from other funding sources.

Analogy for Client Advisory

To assist clients in understanding the limitations of this program, you might compare the Section 128 limit to a "corporate water voucher." The employer can give an employee a voucher for up to 2.5 gallons of water (the $2,500 limit) to pour into their family's buckets (Trump accounts). However, the voucher is issued to the employee, not the buckets. Even if the employee has three buckets (three children), they still only get one 2.5-gallon voucher to split among them, not three separate vouchers. Furthermore, the buckets themselves have a strict capacity limit (the $5,000 aggregate limit); pouring in the employer's water leaves less room for the family to pour in their own water.

Prepared with assistance from NotebookLM.