Guidance on Eligible Investments for Trump Accounts, CC-00349938-26, RIN 1545-BS14, 26 CFR Part 1, FR Doc. 2026-17123 (Filed Aug. 20, 2026, 8:45 a.m., published Aug. 21, 2026).

The Department of the Treasury and the Internal Revenue Service have released a highly anticipated notice of proposed rulemaking providing comprehensive guidance on the investment parameters governing Trump accounts. Enacted under Section 70204 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly referred to as the One, Big, Beautiful Bill Act, the new statute added Sections 530A, 128, and 6434 to the Internal Revenue Code. A Trump account is defined under Section 530A(b)(1) as an individual retirement account established for the exclusive benefit of an eligible minor under age 18. During the “growth period”—which begins upon the account’s establishment and ends on December 31 of the calendar year in which the beneficiary reaches age 17—funds may only be invested in “eligible investments” designed to promote low-cost, non-leveraged equity growth.

Background and Purpose of the Proposed Regulations

Prior to this proposed rulemaking, the IRS published Notice 2025-68, 2025-52 I.R.B. 856, which outlined initial administrative expectations and requested stakeholder feedback. While the initial notice served as an interim roadmap, the proposed regulations in Proposed Treasury Regulation Section 1.530A-3 provide the formal administrative structure necessary to govern these tax-advantaged accounts. Treasury released these proposed regulations to resolve several practical operational challenges raised by CPAs, trustees, and other financial stakeholders. By moving from the broad strokes of Notice 2025-68 to a formalized regulation, the IRS seeks to establish clear, administrable standards that ensure “long-term investing for the benefit of children” while maintaining strict cost control.

Statutory Authority and Legal Justification

The statutory authority underpinning these proposed regulations is rooted in several explicit delegations of power within the Internal Revenue Code. Specifically, Section 530A(b)(3)(A)(iv) authorizes the Secretary of the Treasury to “specify criteria” that a mutual fund or exchange-traded fund must meet to qualify as an eligible investment. Furthermore, Section 530A(g)(3) directs the Secretary, in selecting trustees for initial accounts, to “take into account the costs imposed by the trustee on the account or the account beneficiary.” Finally, Section 7805(a) provides general authority to prescribe all needful rules and regulations for the enforcement of the Code.

A critical legal position discussed by Treasury is the requirement of operational compliance. While some stakeholders suggested that any failure to follow the written governing instrument should be treated merely as a contractual violation enforceable only by the beneficiary, the Treasury Department and the IRS rejected this narrow view. Instead, the IRS “interpret the language of section 530A(b)(1)(C) as requiring not just specific language to be contained in the written governing instrument but also as requiring operational compliance with the language set forth in the written governing instrument.”

To justify this position, the IRS drew a direct statutory analogy to qualified retirement plans. Under Section 401(a)(9), the Code provides that a trust is not qualified “unless the plan provides that” distributions will follow certain rules. Despite the literal focus on plan language, the Treasury Department and the IRS have long “interpreted this language as requiring operational compliance in order to maintain qualified plan status under section 401(a).” Consequently, under Proposed Treasury Regulation Section 1.530A-3(g)(3), a trustee’s failure to maintain operational compliance will cause the account to “cease to be a Trump account (and thus will also cease to be an individual retirement account (IRA) under section 408(a)) as of the first day the account holds the ineligible investment.”

Definitions of Eligible Investments: Mutual Funds and Exchange-Traded Funds

Under the statutory framework of Section 530A(b)(3)(A), an eligible investment is restricted to either a mutual fund or an exchange-traded fund (ETF). Because neither term is defined in the Code, Notice 2025-68 utilized definitions consistent with their ordinary industry meanings. The proposed regulations build on this but introduce a significant expansion based on stakeholder feedback.

Specifically, Proposed Treasury Regulation Section 1.530A-3(b)(2) defines an ETF as a domestic corporation (including a regulated investment company) registered under the Investment Company Act of 1940 that is either an exchange-traded fund as defined in 17 C.F.R. Section 270.6c-11(a)(1) or “an entity that operates in substantially the same manner as an exchange-traded fund... such as a unit investment trust or ETF share class of a mutual fund operating as an ETF under exemptive relief granted by the Securities and Exchange Commission.” This addition of “ETF share classes” resolves a major concern for practitioners whose clients utilize multi-class mutual fund structures.

In contrast, Proposed Treasury Regulation Section 1.530A-3(b)(4) defines a “mutual fund” as a domestic corporation registered under the 1940 Act as an open-end company that is “not an ETF.” Taken together, these are collectively referred to as “investment funds” under Proposed Treasury Regulation Section 1.530A-3(b)(3).

Replicating the Returns of a Qualified Index

Section 530A(b)(3)(A)(i) requires that an eligible investment fund track the returns of a “qualified index.” Notice 2025-68 had described tracking in a manner that caused concern among fund managers, who feared that the standard index replication language could inadvertently disqualify typical index funds where managers exercise routine administrative and trading discretion.

The proposed regulations address this directly. Proposed Treasury Regulation Section 1.530A-3(c)(2) “exclude[s] the reference to the discretion of advisors, so that advisors can make necessary decisions in pursuit of a fund’s objective to replicate the performance of an index.” Furthermore, the IRS clarified that a fund “is not always required to hold all the underlying stocks included in its chosen index” and may track the returns by holding “less than all of its components.”

Additionally, Proposed Treasury Regulation Section 1.530A-3(c)(3) introduces a crucial addition permitting securities lending. While securities lending increases the fund’s current income, the IRS determined that it “is consistent with the language and purposes of section 530A(b)(3)(A)(i) because it represents passive participation in the performance of the index, so long as the fund retains its economic exposure to the securities lent.” Thus, the regulations establish an explicit exception allowing investment funds to engage in securities lending transactions provided they retain “full economic exposure to the securities lent.”

The Criteria for a Qualified Index

To prevent speculative or high-risk investments, Section 530A(b)(3)(B) defines a “qualified index” as the S&P 500 or any other index that is “comprised of equity investments in primarily [U.S.] companies” and is not industry- or sector-specific. Proposed Treasury Regulation Section 1.530A-3(e)(5) retains the strict “all-equity” requirement from Notice 2025-68, meaning indices containing debt instruments cannot qualify, although a “total-market index” representing large-, mid-, and small-cap stocks is permissible under Proposed Treasury Regulation Section 1.530A-3(e).

Additionally, the proposed regulations retain the “90-percent safe harbor approach” set forth in Notice 2025-68, whereby an index is treated as representing primarily U.S. companies if domestic corporations (under Section 7701(a)(4)) constitute at least 90 percent of the index by weight under Proposed Treasury Regulation Section 1.530A-3(e)(7).

Significantly, the proposed regulations address the treatment of Environmental, Social, and Governance (ESG) indices. While Notice 2025-68 had characterized ESG indices as “sector-specific,” stakeholders noted this description could cause confusion in other legal and financial contexts. Treasury acknowledged this and removed the “sector-specific” description from Proposed Treasury Regulation Section 1.530A-3(e)(3). However, utilizing the broad statutory authority under Section 530A(b)(3)(A)(iv), the proposed regulations explicitly exclude ESG funds, stating that “any investment fund that tracks the returns of an ESG index is not an eligible investment,” defining an ESG index as “any index that has, or is marketed as having, a focus on environmental, social, or governance factors.”

The Risk-Based Standard for Leverage

Under Section 530A(b)(3)(A)(ii), an eligible investment fund must not use leverage. Notice 2025-68 had established a standard that heavily overlapped with the index-tracking requirement, raising concerns that routine, low-risk portfolio practices (such as minor temporary borrowings for redemptions) would disqualify a fund.

The proposed regulations refine this standard by shifting to a risk-based, whole-fund analysis. Proposed Treasury Regulation Section 1.530A-3(d)(1) provides that a fund uses leverage if it utilizes borrowings, derivatives, or economically equivalent strategies “in a way that materially increases the risk of loss associated with an investment in the investment fund.” Under this refined standard, the IRS evaluates “risk associated with the fund as a whole and not one transaction in isolation.”

Thus, Proposed Treasury Regulation Section 1.530A-3(d)(2) clarifies that a fund is not deemed to use leverage “merely because it borrows or uses derivatives as part of its strategy to replicate the performance of an index, so long as the borrowings or derivatives do not materially increase risk of loss.”

The 0.1 Percent Annual Fee and Expense Limit

Section 530A(b)(3)(A)(iii) imposes a strict fee cap, stating that an eligible investment fund must not have annual fees and expenses exceeding 0.1 percent of the balance of the investment. In Notice 2025-68, the IRS focused primarily on annual recurring fees. Stakeholders recommended that transactional charges, such as sales charges, loads, and redemption fees, be excluded from the 0.1 percent cap.

The Treasury Department flatly rejected this recommendation. Treasury analyzed that “excluding transactional fees appears to be...inconsistent with the language and purposes of section 530A(b)(3)(A)(iii), because an investment fund’s fees may be entirely transactional fees and such fees reduce real returns to investors.” Furthermore, allowing such an exclusion “would create an incentive for investment funds to charge or increase that form of fee.”

Accordingly, Proposed Treasury Regulation Section 1.530A-3(f)(2)(ii) provides that a fund’s direct fees “include all amounts that the fund charges its investment fund holders directly, without regard to how such amounts are computed, when they are imposed, or how such amounts are referred to in securities filings or marketing materials.” Annual expenses are evaluated separately for multiple share classes under Proposed Treasury Regulation Section 1.530A-3(f)(3).

Importantly, the proposed regulations clarify that the 0.1 percent cap applies strictly to the investment fund’s internal fees and expenses. Under Proposed Treasury Regulation Section 1.530A-3(f)(2)(iii), custodial fees, administrative account charges, and advisory fees are classified as “trustee fees” or personal advisor fees rather than investment fund fees and are not subject to the 0.1 percent limitation. This distinction provides vital planning clarity for CPAs structuring client accounts.

Trustee Monitoring Procedures and the Annual Safe Harbor

Notice 2025-68 required “reasonable ongoing monitoring” by the trustee to ensure funds remained eligible. Stakeholders expressed significant concern that a continuous, day-to-day monitoring standard was practically unadministrable and would discourage financial institutions from acting as trustees.

In response, Proposed Treasury Regulation Section 1.530A-3(g)(6) establishes a highly practical safe harbor. Trustees are deemed to satisfy their monitoring obligations if they perform periodic determinations of eligible investment status “at least once every 12 months.” In conducting these reviews, trustees are explicitly permitted to “rely on an investment fund’s prospectus and other public documents required by Federal securities laws.”

If an investment fund ceases to be eligible, Proposed Treasury Regulation Section 1.530A-3(g)(5)(ii) mandates that the trustee promptly sell or dispose of the fund and reinvest the proceeds in an eligible alternative within 30 days. To address concerns about retroactive disqualification, Proposed Treasury Regulation Section 1.530A-3(g)(5)(ii)(B) provides that if a trustee is in compliance with the annual monitoring safe harbor, the 30-day disposal clock is triggered on the date of the next periodic determination or, if earlier, “the time that the trustee acquires actual knowledge that the investment is no longer an eligible investment.” If the trustee is non-compliant with the monitoring rules, the ineligibility date retroactively reverts to “the first day that the investment fund does not meet the requirements.”

Correction of Administrative Errors

Recognizing that administrative mistakes are inevitable, Proposed Treasury Regulation Section 1.530A-3(g)(7) provides a critical correction mechanism. If a trustee has established compliant procedures but a portion of the Trump account’s assets is incorrectly invested due to an administrative error (such as an oversight or applying procedures incorrectly), the account will not be disqualified. Instead, the trustee must sell the ineligible asset and reinvest the proceeds “within 30 calendar days from the first day that portion was not invested in an eligible investment.” The trustee must also disclose to the beneficiary the duration of the error, the assets held, and the amount reinvested.

Furthermore, Treasury is considering a supplemental correction rule that would allow trustees to “replace, to the extent needed, earnings in the account that the account would have had if the account had been properly invested in an eligible investment.” Crucially, the IRS notes that “such replaced earnings would not be considered contributions subject to the contribution limitation under section 530A(c)(2).” Treasury is requesting comments on whether these procedures should be integrated into the broader IRA correction framework authorized under Section 305(c) of the SECURE 2.0 Act (Public Law 117-328).

Proposed Effective Date and Interim Taxpayer Reliance

Under Proposed Treasury Regulation Section 1.530A-3(h), the regulations are proposed to apply to taxable years beginning on or after January 1, 2026. The sole exception is paragraph (g), governing trustee operational procedures, which is proposed to apply to taxable years beginning on or after the date of publication of the final regulations in the Federal Register.

For tax professionals advising clients today, the proposed regulations provide immediate, actionable certainty. Proposed Treasury Regulation Section 1.530A-3(h) explicitly states that “a taxpayer or a trustee may rely on the proposed regulations for taxable years beginning before the finalization date if the taxpayer or trustee, respectively, follows these proposed regulations in their entirety and in a consistent manner.” Consequently, CPAs and EAs may confidently advise trustees and beneficiaries to structure and operate Trump accounts in accordance with these proposed rules during the interim period preceding finalization.

Prepared with assistance from Gemini Notebook.