Proposed rule about a Trump account contribution program

Today’s proposed rulemaking interprets Internal Revenue Code of 1986 §§ 125, 128, 129.

Under the proposed interpretation, a self-employed individual is not an employee for § 128, but is an employee for § 129, which includes nondiscrimination provisions partially included in § 128.

The comments due date is September 25; the hearing is October 15.

https://www.govinfo.gov/content/pkg/FR-2026-08-11/pdf/2026-16314.pdf

Among the conditions for a Trump account contribution program is a written plan.

What disturbs me most about including a Trump account in a cafeteria plan to which employees can make salary reduction contributions is the following: Section 125 makes it very clear that any benefit that provides for the deferral of compensation (with certain statutory exemptions for HSAs and carry over of certain unspent flexible spending account balances) is a nonqualifying benefit which cannot be provided under the cafeteria plan. A Trump account is an IRA (which is not subject to the general requirement that the beneificary have compensation as a condition to being to make contributions to it). The balance in the Trump account is expected to be used by the child in adulthood (or possibly, converted to a traditional or Roth IRA to which the former child beneficiary can make additional contributions once s/he begins to receive compensation. The Trump account defers these amounts and thus, violates the prohibition against a cafeteria plan providing benefits deferring compensation. This is a definite problem that should have been rectified as part of the process of drafting the OBBBA. Therefore, at worst, including a Trump account in a cafeteria plan or even allowing for salary reduction contributions to be made to it by employees is technically enough to disqualify the cafeteria plan.

For those who dislike allowing a § 128 contribution as an element of a § 125 cafeteria plan:

The comments period on the Treasury’s proposed interpretation is open.

The Secretary of the Treasury or his delegate might not complete the rulemaking during the currently serving Secretary’s administration.

A final rule published in 2028 might be vulnerable to a 2029 undo using the Congressional Review Act.

If an employer likes an opportunity to allow a § 128 contribution as an element of a § 125 cafeteria plan:

Yesterday’s notice states: “Taxpayers may rely on these proposed regulations for plan years beginning before the date final regulations are published in the Federal Register.”

Unlike statutes about which a litigant beyond the government might assert a claim and a court might interpret a statute differently than an executive agency’s interpretation, only the Internal Revenue Service seeks enforcement of Federal income tax law.

So, an employer might not fear that the IRS would deny § 125 treatment for an otherwise proper cafeteria plan because the plan allows a § 128 contribution allowed under the Treasury’s proposed interpretation.

This is not advice to anyone.