Employers can contribute up to $2,500 a year to an employee’s child’s account under a written Section 128(c) program, without the contribution being treated as taxable income to the employee. The harder question is whether a business owner can use the same benefit for their own child. The statute and current IRS guidance leave that answer unsettled, particularly for sole proprietors and S corporation owner-employees.
A sole proprietor with no employees does not have a clear statutory basis for treating themselves as their own employee for this purpose. An S corporation owner who receives W-2 wages may appear to have a stronger argument, but Notice 2025-68 does not directly resolve that situation either.
The IRS calls this account a Trump Account, a federal savings account for children structured as a new type of individual retirement account under Section 530A of the tax code. These accounts are sometimes described online as child IRAs, although that is not the statutory name, and the rules governing them are different from a traditional or Roth IRA. The account was created by Section 70204 of Public Law 119-21, commonly known as the One, Big, Beautiful Bill Act (OBBBA), enacted July 4, 2025. Full details are on the IRS’s Trump Accounts page.
An account may be opened for a child who has a valid Social Security number and has not turned 18 by the end of the calendar year in which the election is made. Section 530A does not add a citizenship requirement to that general eligibility test.
Citizenship does matter for one specific piece of money: the federal government’s one-time $1,000 pilot deposit. Under Section 6434, that deposit goes only to an eligible child who is a U.S. citizen with a valid Social Security number, born after December 31, 2024 and before January 1, 2029. A child born outside that window, or without U.S. citizenship, can still have a Trump Account and receive other contributions; they just do not receive the pilot deposit.
The table below compares the contribution situations discussed in this article.
Contribution path | Governed by Section 128(c)? | What determines eligibility |
|---|---|---|
Business contributing to an employee’s child’s account | Yes | A written Trump account contribution program |
Sole proprietor contributing to their own child’s account | Not directly addressed | No payroll relationship for Section 128 to attach to; treat as unresolved, not a settled “no” |
S corporation owner-employee contributing to their own child’s account | Not resolved | Not addressed directly in current IRS guidance |
Parent, family member, or other individual contributing directly | No | Treated as a contribution “from other sources,” not an employer contribution |
Federal $1,000 pilot contribution | No | Funded by the Secretary of the Treasury; not employer-related |
Yes. Under Section 128(a), an employer’s contribution to the Trump Account of an employee’s child is excluded from that employee’s taxable income, as long as the contribution is made under a program described in Section 128(c). That program has to be a separate written plan, established for the exclusive benefit of employees, before any contribution under it qualifies for the exclusion.
It depends on how the business is structured and whether the owner has a genuine employer-employee relationship with the business. Section 128(c) defines a qualifying program as one covering “employees,” and the statute does not spell out whether a business owner acting as their own employer meets that definition. The two scenarios that come up most often for Accolade’s clients, sole proprietors and S corporation owner-employees, are addressed separately below.
Notice 2025-68 does not address this directly, but the statute offers a strong signal. Section 128(c) requires a qualifying program to meet requirements similar to paragraphs (2), (3), (6), (7), and (8) of Section 129(d), the dependent care assistance program rules. It leaves out Section 129(e)(3), the provision elsewhere in those same rules that treats a self-employed individual as their own employee. Without that cross-reference, a sole proprietor with no one else on payroll has no clear statutory basis to count as their own employee for a Section 128(c) contribution.
This is a reading of the statute, not a conclusion IRS guidance states outright. Confirm the treatment with your accountant before excluding a contribution from income on this basis.
A sole proprietor can still contribute to their own child’s account as an individual. That contribution falls under the $5,000 aggregate annual limit described below, just not as a Section 128(c) employer contribution.
This is not resolved. An S corporation owner who works in the business and receives W-2 wages has a more conventional employer-employee relationship on payroll than a sole proprietor does, but Notice 2025-68 does not say whether that relationship satisfies Section 128(c) when the “employer” and the “employee” are the same person controlling the business. Receiving a W-2 does not by itself answer this question. Until the IRS or Treasury addresses it directly, an S corporation owner considering this route should treat it as an open question for their accountant rather than an assumption to build a program around.
An employer may contribute up to $2,500 per employee each year, in total, with a cost-of-living adjustment for taxable years beginning after 2027. If an employee has more than one child with an account, the employer does not get a separate $2,500 limit for each child; the cap applies per employee, not per account. That $2,500 shares one combined annual limit of $5,000 with individual contributions from a parent or other source, a limit set by Notice 2025-68. That $5,000 limit holds for 2026 and 2027, then adjusts for cost of living after that.
Three types of contributions are exempt from that $5,000 limit and do not count against it: the $1,000 federal pilot contribution, qualified general contributions (funded by a state, the District of Columbia, an Indian tribal government, or a 501(c)(3) organization), and qualified rollover contributions. A Section 128(c) employer contribution is not exempt. It counts toward the $5,000 aggregate along with any contribution from a parent or other individual, so an employer and a family cannot each independently contribute up to the full amount in the same year without exceeding the combined cap.
Yes, in most cases. Notice 2025-68 confirms a Trump account contribution program may be offered through salary reduction under a Section 125 cafeteria plan when the contribution goes into the account of the employee’s dependent. It cannot be offered through salary reduction when the contribution would go into the employee’s own account, because that would create deferred compensation under Section 125(d)(2)(A). For a business owner thinking through payroll design, this means the payroll-deduction option only works for funding a child’s account, not the owner’s own account.
Section 128(c) requires the same general framework Section 129(d) sets out for a dependent care assistance program. Based on that cross-reference and on Notice 2025-68’s Q&A guidance, a written Trump account contribution program needs to address:
Notice 2025-68 also states that the Treasury Department and IRS intend to propose regulations addressing these items in more detail, so treat this list as the current framework rather than a finished checklist.
Yes. Because Section 128(c) borrows its structure from Section 129(d), a program that concentrates contributions among owners or highly compensated employees, while offering little or nothing to other eligible employees, risks the same kind of nondiscrimination and benefits testing that applies to a dependent care assistance program. A program that fails the applicable nondiscrimination requirements may lose its intended tax treatment. Employers should address employee classification and benefits testing before making contributions.
The Department of Labor and the Department of the Treasury have said, in a footnote to Notice 2025-68, that they anticipate issuing guidance on how to structure Section 128 employer contributions so they are not subject to the ERISA coverage framework. That guidance had not been issued as of this writing. Until it is, treat ERISA applicability as an open question rather than a settled one when documenting a program.
Accounts became eligible to receive contributions on July 4, 2026. That date applies to Section 128(c) employer contributions along with every other contribution type described above, per Notice 2025-68.
Notice 2025-68 allows a trustee to reject a contribution that would push the aggregate above the limit, and it permits a distribution of excess contributions from the account. A business coordinating a Section 128(c) program should build in a way to check the running total before making a contribution.
Before adopting a child IRA contribution program, confirm how Section 128 applies to your business structure, who will be eligible, and how contributions will be administered. As your small business tax advisor, Accolade can work through how this and other tax questions affect your business before you make a contribution.
Related services: Business Tax Planning and Advising, CFO Consulting.
Disclaimer: This article is for informational purposes only and is not intended as tax advice. Tax situations vary, and IRS rules can change. Always consult with a qualified tax professional regarding your specific circumstances.
